The final (third) estimate for US Q4 2025 real GDP growth came in at 0.5% annualized, a sharp slowdown from 4.4% in Q3 2025 and well below earlier expectations. Advance estimate (February 2026): 1.4% already below consensus forecasts around 2.5–3.0%.
Second estimate (March 2026): Revised down to 0.7%. Third/final estimate (April 9, 2026): Further revised to 0.5%, primarily due to downward adjustments in investment including inventories and intellectual property and other components. For the full year 2025, real GDP grew 2.1%, down from 2.8% in 2024. Consumer spending still the main driver, though it decelerated to around 1.9–2.4% depending on the estimate.
Private investment particularly in equipment and intellectual property products, supported by AI-related activity. These were more than offset by: A sharp contraction in government spending subtracting roughly 1.0 percentage point, largely due to a prolonged federal government shutdown in October–November 2025. Declines in exports. Weaker residential investment and structures.
Private-sector activity showed more resilience than the headline number suggests, but the shutdown acted as a significant one-off drag. On the inflation side, PCE; the Fed’s preferred measure largely came in as expected or showed persistent pressures rather than cooling dramatically: Headline PCE in Q4 was around 2.9% year-over-year. Core PCE excluding food and energy remained sticky, with monthly gains of 0.4% in some recent readings and annual rates holding near 3.0% in December 2025 data.
February 2026 updates also showed continued month-over-month firmness, with no clear acceleration but little disinflation relief either. This growth slowdown + sticky inflation mix has echoes of stagflationary concerns, though the shutdown was a temporary policy shock rather than a broad demand collapse. Broader factors cited in analyses include policy uncertainty, tariffs, immigration changes, and external shocks.
Markets had already priced in some weakness after earlier revisions, but the final 0.5% print reinforces a loss of momentum heading into 2026. The Fed will likely watch upcoming data closely—private demand held up better than feared, but persistent core PCE above 2% limits room for aggressive easing. This confirms Q4 was a clear soft patch, heavily influenced by the government shutdown, but the underlying economy wasn’t in freefall.
Full-year 2025 growth of ~2.1% was still positive, though notably softer than 2024. Early 2026 data will be key to see if momentum rebounds once the shutdown effects fade. The 2025 U.S. federal government shutdown was the longest in history at 43 days. It occurred because Congress failed to pass appropriations legislation or a continuing resolution to fund the government for fiscal year 2026.
Under the Antideficiency Act, federal agencies cannot spend money without congressional appropriations. When funding lapses, non-essential operations halt, and many employees are furloughed roughly 750,000–900,000 in this case. This shutdown was a full shutdown affecting all agencies without prior appropriations. Republicans controlled the White House, House, and Senate.
Republicans needed Democratic support to pass a clean or Republican-favored CR, giving the minority party leverage. The main sticking point was expanded Affordable Care Act premium tax credits enhanced subsidies helping millions afford marketplace health insurance. These were set to expire at the end of 2025. They blocked Republican-led CRs which failed up to 14 times in the Senate and demanded inclusion of an extension for these subsidies, plus reversal of certain Medicaid cuts or other healthcare protections from prior legislation.
They viewed the funding bill as a must-pass vehicle to protect healthcare access for millions and prevent premium spikes. Some also pushed to limit executive authority over withholding appropriated funds. They advanced clean or limited CRs to extend funding at current or reduced levels without the healthcare add-ons, arguing such policy changes should be handled separately.
They accused Democrats of holding government funding hostage for partisan priorities and a large spending increase. The House passed versions of these bills, but they stalled in the Senate. Broader context included disagreements over overall spending levels, potential cuts to various programs, and implementation of the new administration’s priorities. Earlier budget resolutions from both parties failed in the Senate.
After weeks of impasse, mounting economic pressure, and disruptions, a compromise emerged: The Senate passed and House followed a revised bill funding parts of the government through January 30, 2026, with full-year appropriations for agriculture, military construction and veterans affairs, and legislative branch.
It included reversal of any Reduction in Force during the shutdown and retroactive pay for furloughed workers. In exchange, Democrats received a commitment for a future vote on ACA subsidies though not guaranteed passage. Unlike some past shutdowns this occurred under unified Republican control. The leverage came from Senate rules requiring supermajority support for appropriations.
It highlighted ongoing dysfunction in the annual budgeting process—Congress has rarely passed all 12 appropriations bills on time. The shutdown contributed to the weak Q4 2025 GDP print via reduced government spending, though private-sector resilience limited broader damage. A shorter partial lapse occurred briefly in early 2026 over remaining bills. Government shutdowns are ultimately a symptom of deep partisan divides over fiscal priorities, with both sides using must-pass legislation as bargaining chips.
