Fourth-quarter GDP growth slows to 1.4% as shutdown drags economy

U.S. economic growth slowed sharply in the fourth quarter, expanding at a 1.4% annual rate according to the Commerce Department, down dramatically from the 4.4% pace in the third quarter. A six-week federal government shutdown shaved roughly one percentage point from growth, while consumers pulled back on spending after months of borrowing to maintain their purchasing power.

The slowdown reflects deeper tensions beneath an economy that appears resilient on the surface. Consumer spending rose 2.4% in the fourth quarter, a solid increase but notably below the third quarter’s 3.5% gain. Meanwhile, the personal saving rate fell to 3.6%, the second-lowest figure since August 2008, when the economy was mired in the Great Recession.

The economy is growing steadily and unemployment remains low, but the slowdown underscores deep structural challenges: Americans are saving less and taking on more debt to fuel spending, the job market is not keeping pace with economic expansion, and consumers remain pessimistic despite economic data suggesting strength.

Consumers Spend Less as Savings Plunge

Federal government outlays plunged nearly 17% during the shutdown. The sharp contraction from that single factor should mostly reverse in coming quarters as government spending resumes. A measure of underlying growth that focuses on consumer and business spending was 2.4%, which economists described as mostly healthy.

Martha Gimbel, executive director of the Budget Lab at Yale and a former economist in the Biden White House, said consumers and companies spent at a reasonably solid pace. “This is not a disastrous report,” she said.

Diane Swonk, chief economist at KPMG, offered a darker reading. She described the economy as “one-legged,” boosted mostly by artificial intelligence, which is fueling business spending on data centers and equipment dedicated to AI. “The economy looks golden on paper,” Swonk said, “but beneath the surface is lead.”

The underlying concern is how long consumers can sustain spending without depleting savings further. Many households have taken on additional debt and reduced their savings to maintain purchasing power. The saving rate’s descent to 3.6% represents a sharp shift from the elevated saving that characterized the pandemic years.

Tariffs Struck Down, Set to Return

The report arrives amid policy turbulence. On Friday, the Supreme Court struck down many of President Donald Trump’s tariffs, which had lifted inflation slightly and likely discouraged companies from hiring by raising their costs. At a news conference, Trump said he would reimpose tariffs under different laws than the one the court invalidated.

The fourth-quarter slowdown stands in contrast to the outsize growth of last summer and fall, when the economy expanded at about a 4% annual pace. That expansion partly reflected sharply lower imports, as companies had ramped up imports in the first quarter of last year to get ahead of Trump’s tariff announcements. After boosting growth in the second and third quarters, trade had little impact at the end of the year.

Growth Without Job Creation

The report underscores an unusual feature of the current economy: steady growth without robust job creation. U.S. economic growth in 2025 was 2.2%, but employers added less than 200,000 jobs that year—the fewest since the pandemic struck in 2020. The unemployment rate rose to 4.3% from 4% over the course of the year.

Economists point to several factors explaining the gap between growth and job creation. The Trump administration’s crackdown on immigration has slowed population growth, reducing the number of people available to take jobs. Some businesses may also be holding back on hiring amid uncertainty about whether artificial intelligence will enable them to produce more without adding workers. Additionally, tariff costs have reduced profits at many companies, possibly leading them to cut back on hiring.

Adding to the puzzle, consumer confidence has collapsed. In January, consumer confidence fell to its lowest level since 2014, yet consumers have kept spending, sustaining economic growth. Some analysts suggest that upper-income consumers, who have benefited from rising stock prices, may be driving a disproportionate share of spending, while lower-income households have also raised spending, albeit more modestly.