U.S. Economic Growth Plunges Below One Percent in Late 2025 as Consumers Pull Back
Washington, D.C., Friday, 13 March 2026.
U.S. economic growth slowed to a sluggish 0.7% in late 2025. A 43-day government shutdown and a sharp decline in consumer spending drove this concerning downward revision.
Breaking Down the Fourth-Quarter Deceleration
The Bureau of Economic Analysis (BEA) released its second estimate for the fourth quarter of 2025 on Friday, revealing that the U.S. economy grew at an annualized rate of just 0.7 percent [1]. This figure represents a sharp 50 percent decrease from both the Commerce Department’s initial estimate of 1.4 percent and the 1.4 percent projection held by economists polled by LSEG [1]. The sluggish end to 2025 starkly contrasts with the robust expansion seen earlier in the year, where gross domestic product (GDP) surged by 3.8 percent in the second quarter and 4.4 percent in the third quarter [1]. Despite a 0.6 percent contraction in the first quarter, the overall economic growth for 2025 averaged approximately 2.08 percent [1].
The Impact of the Government Shutdown and Energy Shocks
A major catalyst for the fourth quarter’s economic deceleration was the 43-day partial government shutdown that stretched from October into mid-November 2025 [1]. The BEA estimates that this extended disruption not only delayed the release of economic reports but also directly reduced real GDP growth in the final quarter by approximately 1 percentage point [1]. Had the shutdown been averted, the fourth-quarter growth trajectory would have likely aligned much closer with initial projections [1].
Monetary Policy and Future Market Outlook
The combination of sluggish growth and persistent inflation places the Federal Reserve in a complex position as Chair Jerome Powell and central bank policymakers prepare to meet next week, starting on March 16, 2026 [1]. Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, argues that the sticky inflation data reinforces the likelihood that the Federal Reserve will remain on the sidelines rather than cut interest rates [1]. Torsten Slok of Apollo Global Management echoes this sentiment, warning that an ongoing crisis and firm fiscal policy could cause the economy to run too hot, clouding the easing outlook and pushing market expectations for the next rate cut out to the second quarter of 2027 [4].