Economic growth in the United States slowed significantly in the final quarter of 2025, with the latest data revealing a downward revision to just 0.7% annual growth. Concurrently, core inflation showed an increase at the start of 2026, according to figures released Friday by the Commerce Department’s Bureau of Economic Analysis (BEA).
The Gross Domestic Product (GDP) reading for the fourth quarter was revised down from an initial estimate of 1.4% to a mere 0.7% annual rate. This figure fell considerably short of the 1.5% consensus forecast among economists and marked a sharp deceleration from the 4.4% growth recorded in the third quarter. The slowdown was partly attributed to a significant 16.7% drop in government spending, exacerbated by a prolonged government shutdown.
For the entirety of 2025, the U.S. economy expanded by 2.1%, a slight decrease from the previously reported figure and lower than the 2.8% growth seen in 2024. The BEA noted that downward revisions to consumer spending, government spending, and exports contributed to the weaker GDP performance. A less pronounced decline in imports, which are subtracted from GDP calculations, also played a role.
Consumer Spending and Inflation Trends
Consumer spending, a key driver of economic activity, increased by 2% in the fourth quarter. This was a downward revision from previous estimates and represented a notable slowdown from the 3.5% rise in the third quarter. The BEA specifically cited a downward adjustment in healthcare spending as a primary factor within services contributing to this revision.
On the inflation front, January’s figures indicated price increases that remain above the Federal Reserve’s target levels. The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose by 0.3% for the month, bringing the annual rate to 2.8%. These figures were largely in line with economists’ expectations of 0.3% and 2.9%, respectively.
Excluding the volatile components of food and energy, core PCE inflation increased by 0.4% in January, reaching a 12-month rate of 3.1%. This core reading, closely watched by Fed officials for insights into longer-term inflation trends, was 0.1 percentage points higher than the December rate.
Durable Goods Orders and Market Reactions
A separate report from the Commerce Department revealed that orders for durable goods, which include items like transportation equipment and electronics, were flat in January. This performance was significantly below the anticipated 1.3% gain and represented a slight improvement from a 0.9% decline in December. Excluding the transportation sector, orders for durable goods saw a modest increase of 0.4%.
David Russell, global head of market strategy at TradeStation, commented on the economic data, stating, “The big downward revision in GDP is a gut check going into this energy crunch, increasing the risk of stagflation.” He added, “The soft January durable goods data also suggests the economy entered this crisis weaker than hoped. This creates challenges for investors with PCE inflation still running well above the Fed’s target.”
These economic indicators provide a snapshot of inflation pressures and growth trends preceding significant geopolitical events. The data predates the Supreme Court’s decision to void certain tariffs imposed by former President Donald Trump, which economists had estimated added approximately half a percentage point to inflation. Furthermore, the figures were released before the recent U.S. and Israeli attacks on Iran, which have led to a surge in energy prices, with Brent crude touching $100 a barrel.
Federal Reserve’s Inflation Challenge
Sonu Varghese, chief macro strategist for the Carson Group, noted the implications of the inflation data, particularly in light of recent geopolitical developments. “The inflation data tells us that the inflation picture wasn’t looking good even before the Middle East crisis,” Varghese said. “An already large headache for the Federal Reserve is going to turn into an even larger one, and it’s likely the Fed will not cut rates in 2026 and may even start talking about rate hikes later this year.”
Personal income and spending both rose by 0.4% in January, slightly below the respective estimates of 0.5% and 0.3%. The personal saving rate saw an increase, jumping half a percentage point to 4.5%.
Within the GDP report, private demand, measured by private sales to private domestic purchasers, increased by 1.9% in the fourth quarter. This represents a downward revision of half a percentage point from previous estimates and a full percentage point lower than the preceding quarter.
The Federal Reserve closely monitors the PCE gauge as a more comprehensive measure of inflation than the Consumer Price Index (CPI). Earlier in the week, the Bureau of Labor Statistics reported a February headline CPI rate of 2.4% and a core CPI rate of 2.5%, the latter being the lowest since March 2021 but still above the Fed’s 2% target. The central bank is scheduled to announce its next interest rate decision this week, with markets anticipating no change to the current federal funds rate.
Fonte: CNBC
