US Economic Growth Slows to 0.7% in Fourth Quarter of 2025

2026-03-13

The BareStory

The United States economy expanded at an annual rate of 0.7 percent in the fourth quarter of 2025, marking a sharp deceleration from the 4.4 percent growth recorded in the third quarter. The Commerce Department released the figures on Friday, officially downgrading an initial fourth-quarter growth estimate of 1.4 percent. For the full year of 2025, the gross domestic product grew by 2.1 percent.

According to the Bureau of Economic Analysis, the downward revision stemmed from adjustments to consumer spending, government spending, and trade data. The Commerce Department indicated that a 43-day government shutdown last fall severely impacted the economy, leading to a 16.7 percent drop in federal spending and subtracting 1.16 percentage points from fourth-quarter growth.

The economic slowdown coincides with a weakening labor market and persistent inflation. Employment data showed that companies and government agencies eliminated 92,000 jobs last month, capping off a year of job growth described by economists as the weakest outside of recession years since 2002. Meanwhile, January metrics showed the personal consumption expenditures price index rising to an annual inflation rate of 2.8 percent, with core inflation reaching 3.1 percent.

The broader economic outlook remains influenced by recent policy changes and international conflicts. A recent Supreme Court decision voided several import tariffs instituted by President Donald Trump, which economists estimated had previously contributed to inflation trends. Furthermore, energy costs have steadily climbed over the past two weeks amid an ongoing conflict involving Iran, with market data showing the international Brent crude benchmark reaching $100 a barrel on Thursday.

Left Perspective

Shield Household Demand
Flag Shutdown Self-Harm
Temper External Price Shocks

Right Perspective

Defend Policy Predictability
Prioritize Inflation Discipline
Reduce Distorting Barriers

Left Perspective

• Shield Household Demand Value is protecting workers and consumers from macro shocks. The 0.7% fourth-quarter growth and the downgrade from 1.4% signal weaker underlying momentum than expected, especially as consumer spending revisions helped drive the cut. With 92,000 jobs eliminated last month and 2.8% inflation (3.1% core), this camp reads the mix as “less growth, still-pricey,” which squeezes households. Success looks like policies that stabilize purchasing power and prevent the slowdown from cascading into deeper labor-market damage.

• Flag Shutdown Self-Harm Value is competent governance and avoiding artificial economic sabotage. The 43-day government shutdown is treated as a preventable policy failure because the reported 16.7% drop in federal spending subtracted 1.16 percentage points from growth. This camp sees the GDP slump as partly man-made, not purely cyclical, and therefore fixable through institutional reforms that keep basic government operations running. The priority is reliability: stop governance shocks that hit vulnerable communities first.

• Temper External Price Shocks Value is limiting inflation from geopolitical and trade channels. With Brent crude reaching $100 a barrel amid the Iran conflict and inflation still elevated, they see energy costs as a regressive tax that can erase wage gains and worsen inequality. The Supreme Court voiding several tariffs is interpreted through a cost-of-living lens: fewer tariff-driven price pressures can help consumers, but it doesn’t solve energy-driven inflation. The feared risk is stagflation dynamics—weak growth plus stubborn prices—forcing harsher tradeoffs later.

Right Perspective

• Defend Policy Predictability Value is stable rules that let firms plan, invest, and hire. The sharp deceleration to 0.7% and the official downgrade from 1.4% are read as signs that uncertainty—especially around government actions—undermines confidence. The shutdown’s 16.7% federal spending drop and 1.16-point GDP hit look like a direct penalty for political dysfunction that markets can’t price cleanly. Success means reducing self-inflicted volatility so private activity can lead growth.

• Prioritize Inflation Discipline Value is preserving currency credibility and avoiding a wage-price spiral. With PCE inflation at 2.8% and core at 3.1%, this camp sees “sticky” inflation as the bigger long-run threat than a single weak quarter, because it distorts investment and erodes real savings. The 92,000 job cuts and weakest non-recession-year job growth since 2002 are worrying, but they interpret them as the cost of resetting overheated conditions. The priority is preventing inflation from becoming entrenched even if growth temporarily cools.

• Reduce Distorting Barriers Value is market efficiency and lower input costs across the economy. The Supreme Court voiding several Trump-era import tariffs is viewed as a pro-competition correction that can ease price pressures and improve trade flows over time. At the same time, $100 oil tied to the Iran conflict highlights vulnerability to external supply shocks—reinforcing the preference for domestic resilience and minimizing policy-driven cost add-ons like tariffs. The feared risk is combining geopolitical energy spikes with domestic intervention that further raises costs and suppresses growth.

How it may affect me

As a U.S. reader:

• You may face a more difficult job market and potential employment instability in the short term, as 92,000 jobs were recently eliminated during the weakest year for non-recession job growth since 2002.

• Your household budget will likely remain squeezed by persistent inflation, with core inflation at 3.1 percent continuing to elevate the cost of everyday goods and erode the value of your savings.

• You can expect higher immediate costs for gasoline and energy, as international crude oil prices have reached $100 a barrel in response to overseas conflicts.

• You might eventually see lower prices on certain consumer products over the long term, as the Supreme Court recently voided several import tariffs that had previously driven up costs for imported goods.

US Economic Growth Slows to 0.7% in Fourth Quarter of 2025

The BareStory

Left Perspective

Right Perspective

How it may affect me

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