Commerce Department Downgrades U.S. Fourth-Quarter Growth to 0.7% After 43-Day Government Shutdown

The Commerce Department on Friday sharply downgraded U.S. fourth-quarter GDP growth to an unexpectedly sluggish 0.7% annual rate for October through December, revising down its initial 1.4% estimate and citing the effects of a 43-day government shutdown as a major factor in the weakness.

“By PAUL WISEMAN, AP Economics Writer WASHINGTON (AP) — The U”

The Morning Call

The agency’s revision surprised economists who had expected the opposite direction of change, and the report framed the slowdown as a significant loss of momentum at year-end.

Quarter-to-quarter comparisons in the report underscored the slowdown: fourth-quarter growth was down sharply from 4.4% in the third quarter and 3.8% in the second quarter, reversing two strong readings and signaling a clear softening by year-end.

The Commerce Department also reduced its estimate of underlying economic strength, with the measure that excludes volatile items coming in weaker than previously reported.

“By PAUL WISEMAN, AP Economics Writer WASHINGTON (AP) — The U”

The Morning Call

The downgrade reflected striking shifts in spending components: federal government spending and investment, which the report said were "clobbered by the shutdown," plunged at a 16.7% annual rate and subtracted roughly 1.16 percentage points from fourth-quarter growth.

“By PAUL WISEMAN, AP Economics Writer WASHINGTON (AP) — The U”

The Morning Call

Consumer spending also slowed—growing at a 2% clip versus 3.5% in the third quarter—while exports fell at a 3.3% annual rate and business investment (excluding housing) rose more modestly than first estimated.

On an annual basis, the report showed the U.S. economy grew 2.1% in 2025—solid but revised down from an initial 2.2% estimate and weaker than 2.8% in 2024 and 2.9% in 2023—highlighting the deceleration.

Economists and market commentators framed the weak fourth-quarter finish as the product of both the prolonged shutdown and a pullback in consumption, even as pockets of investment, including spending tied to artificial intelligence, helped support business outlays.

“By PAUL WISEMAN, AP Economics Writer WASHINGTON (AP) — The U”

The Morning Call

The report concluded with caution about the outlook: analysts noted the economy’s prior resilience despite policies cited in the article, but warned that geopolitical strain and rising energy costs had clouded prospects while the labor market showed signs of softening.

“By PAUL WISEMAN, AP Economics Writer WASHINGTON (AP) — The U”

The Morning Call

The Commerce downgrade and commentary together painted a picture of an economy that stumbled into year-end as policy shocks, a costly shutdown and slower consumption growth combined to trim momentum.