US economy expanded at sluggish 0.7% in fourth quarter, government says, downgrading first estimate
Mar 13, 2026, 5:42 AM | Updated: 10:16 am
FILE - A person shops at a grocery store in Schaumburg, Ill., Monday, Feb. 9, 2026. (AP Photo/Nam Y. Huh, File)
Credit: ASSOCIATED PRESS
(AP Photo/Nam Y. Huh, File)
WASHINGTON (AP) — The U.S. economy, hobbled by last fall’s 43-day government shutdown, advanced at a sluggish 0.7% annual rate from October through December, the Commerce Department reported Friday in a big downgrade of its initial estimate.
Growth in gross domestic product — the nation’s output of goods and services — was down sharply from 4.4% in last year’s third quarter and 3.8% in the second. And the fourth-quarter number was half the government’s first estimate of 1.4%; economists had expected the revision to go the other way — and show stronger growth.
Federal government spending and investment, clobbered by the shutdown, plunged at a 16.7% rate, hacking 1.16 percentage points off fourth-quarter growth.
For all of 2025, GDP grew 2.1%, solid but down from an initial estimate of 2.2% from 2024 and 2023.
In the fourth quarter, consumer spending grew at a 2% clip, down from 3.5% in the third quarter. Business investment, excluding housing, increased at a healthy 2.2% pace, likely reflecting money being poured into artificial intelligence, but it was down from 3.2% in the third quarter.
The U.S. economy — the world’s largest — has shown surprising resilience in the face of President Donald Trump’s policies, including sweeping import taxes and mass deportations. But the war with Iran has driven up oil and gas prices and clouded the economic outlook.
Meanwhile, the American job market is in a slump. Last month, companies, nonprofits and government agencies cut 92,000 jobs. In 2025, they added fewer than 10,000 jobs a month, the weakest hiring outside recession years since 2002.
Economists are puzzling out whether hiring will accelerate to catch up to solid GDP growth or if growth will slow to reflect a weak labor market or if advances in artificial intelligence and automation mean that the economy can gallop ahead without creating many jobs.
Friday’s GDP was the second of the three estimates of fourth-quarter growth. The final report is due April 9.
