US Growth Barely Crawls at Year-end after Shutdown Drag

With input from AP, the Hill, FOX Business, and Reuters.

The US economy limped into the finish line last year.

New government data shows growth slowed to a 0.5% annual pace in the final three months of 2025, weaker than previously thought and a sharp drop from the strong gains earlier in the year. The number was revised down from an already soft 0.7%, capping off a quarter weighed down by a 43-day government shutdown.

That slowdown stands out. Just months earlier, the economy was expanding at a 4.4% clip, with momentum that now feels distant.

The shutdown did real damage. Federal spending and investment plunged at a 16.6% rate, shaving more than a full percentage point off overall growth. That kind of hit is hard to ignore, especially in a quarter where the rest of the economy wasn’t exactly firing on all cylinders.

Consumers kept things moving, but only just. Spending rose 1.9%, a step down from earlier in the year. Goods spending – think cars, clothes, everyday purchases – nearly stalled, growing just 0.3% after a much stronger summer.

Business investment held up better, increasing at a 2.4% pace. Some of that likely reflects continued spending tied to artificial intelligence, though even that cooled compared to the previous quarter.

Strip out the noise, and the picture still softens. A key measure of underlying demand – excluding volatile factors like inventories and government spending – grew 1.8%, down from 2.9% before. Not a collapse, but clearly losing steam.

Zoom out, and the trend is clear. The economy grew 2.1% for all of 2025, down from 2.8% in 2024 and 2.9% the year before. Growth hasn’t stalled, but it’s drifting lower.

The backdrop isn’t helping. The US-Israel conflict with Iran has pushed up energy prices and rattled global trade routes, especially with disruptions in the Strait of Hormuz. Oil is still trading well above pre-war levels, and that pressure is starting to seep into everything from inflation to household budgets.

Gas prices tell the story. A gallon now averages over $4 in the US, up sharply in just a month. That kind of jump tends to ripple quickly through the broader economy.

The labor market isn’t offering much clarity either. Hiring has been uneven – solid gains one month, steep losses the next. It’s the kind of pattern that makes it hard to pin down where things are heading.

Economists aren’t panicking, but the tone has shifted. The fourth quarter was messy, with shutdown distortions and inventory swings muddying the data. Still, growth this weak isn’t easy to brush off, especially with new risks piling up.

The next snapshot of the economy, covering the first quarter of 2026, is due at the end of April. It will land at a moment when higher energy costs, geopolitical tensions, and lingering policy uncertainty are all in play.

For now, the takeaway is simple: the economy is still growing – just not with much urgency.