US Economic Growth Slows Sharply to 0.7% in Fourth Quarter After Downward Revision

Washington | EcoPulse24

The US economy expanded at an annualized rate of 0.7% in the fourth quarter of 2025, marking the weakest quarterly performance since the first quarter of the year and significantly below the initial estimate of 1.4%, according to revised economic data.

The downward revision was driven largely by slower consumer spending and weaker export activity, highlighting signs of cooling economic momentum as the year came to a close.

Consumer spending, which represents the largest component of the US economy, increased by 2% during the quarter, lower than the previously estimated 2.4%. Spending on goods grew modestly by 0.4%, while spending on services rose by 2.7%, indicating a gradual slowdown in household demand.

Business investment also expanded at a slower pace than previously reported. Fixed investment rose by 1.6% compared with an earlier estimate of 2.6%. The weaker performance was mainly attributed to a sharp decline in investment in structures, which dropped by 7.1%.

However, some segments of investment remained resilient. Investment in equipment increased by 3.9%, while spending on intellectual property products, including software and research-related assets, rose by 5.7%.

Residential investment showed signs of stabilization, declining only slightly by 0.5%, suggesting that the housing sector may be approaching a period of adjustment after facing pressure from elevated interest rates.

International trade also weighed on growth. US exports fell by 3.3% in the fourth quarter, significantly worse than the initial estimate of a 0.9% decline and representing the largest contraction in exports since the second quarter of 2023. Imports also declined by 1.1%.

Government spending and investment contracted sharply by 5.8% during the quarter, subtracting approximately 1.03 percentage points from overall economic growth. The decline was largely attributed to disruptions related to a government shutdown that affected certain public sector operations and expenditures.

Despite the weaker fourth-quarter performance, the US economy grew by 2.1% for the full year of 2025. This figure is slightly below the earlier estimate of 2.2% and represents a slowdown from the 2.8% growth recorded in 2024.

The revised figures suggest that the US economy entered the end of 2025 with moderating momentum as higher borrowing costs and tighter financial conditions continued to influence consumer activity, business investment and trade flows.

EcoPulse24 Analysis:
The downward revision of US GDP growth highlights emerging signs of economic moderation after several years of strong expansion. Slower exports and reduced government spending contributed significantly to the weaker performance, while consumer demand and technology-related investment remained key pillars supporting economic activity. The data may reinforce ongoing discussions within the Federal Reserve regarding the future path of monetary policy, particularly as policymakers weigh slowing growth against the trajectory of inflation and financial stability.