U.S. economy grew a sluggish 0.5% in fourth quarter, government says, downgrading previous estimate

Customers shop at the Reading Terminal Market in Philadelphia. (AP Photo/Matt Rourke)

WASHINGTON — The American economy, slowed by last fall’s 43-day government shutdown, grew at a sluggish 0.5 per cent annual pace from October through December, the Commerce Department reported Thursday in downgrade of its previous estimate.

U.S. gross domestic -- the nation’s output of goods and services -- decelerated in the fourth quarter after registering impressive growth of 4.4 per cent from July through September and 3.8 per cent from April through June. The latest number was marked down from the Commerce Department’s previous estimate of 0.7 per cent fourth-quarter growth.

Federal government spending and investment fell at a 16.6% annual pace because of the shutdown, lopping 1.16 percentage points off fourth-quarter GDP growth. Consumer spending expanded 1.9 per cent, down a notch from the previous estimate and from 3.5 per cent in the second quarter. Spending on goods -- such as cars and clothing -- grew just 0.3 per cent, down from three per cent in the July-September period.

For all of 2025, the economy grew 2.1 per cent last year, slower than 2.8 per cent in 2024 and 2.9 per cent in 2023.

Business investment, excluding housing, increased at a 2.4 per cent pace, likely reflecting money being poured into artificial intelligence, but the increase was down from 3.2% in the third quarter.

A category within the GDP data that measures the economy’s underlying strength weakened from October through December, growing at a 1.8 per cent clip, down from 2.9% in the third quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.

The economic outlook for this year is hazy after the U.S.-Israeli war with Iran drove up energy prices and disrupted global commerce.

America’s job market slumped last year -- recording the weakest hiring outside a recession since 2002 -- but has been up and down so far in 2026: Employers added a healthy 160,000 jobs in January, slashed 133,000 in February, then created a surprising 178,000 in March.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP. The first look at January-March economic growth is due April 30

Paul Wiseman, The Associated Press