US economic growth slowed in fourth quarter of 2025 amid government shutdown

• The Congressional Budget Office estimated the shutdown would cost between $7bn and $14bn in unrecovered economic output, with most other losses eventually recovered
• Only 181,000 jobs were added in 2025, down from 1.459 million in 2024, marking the weakest employment growth since the Great Recession
• AI investment (datacenters, semiconductors, software) accounted for roughly one-third of GDP growth in the first three quarters of 2025, while tax cuts and larger refunds are expected to support consumer spending this year

Summary

Key Economic Data:

US GDP growth slowed sharply to 1.4% annualized in Q4 2025, significantly below the 3.0% economist forecast and down from 3.5% in Q3. The Congressional Budget Office (CBO) attributed 1.5 percentage points of the decline directly to the record 43-day government shutdown, with $7-14 billion in permanent output losses expected.

Labor Market Weakness:

Employment showed severe deterioration, with only 181,000 jobs added in 2025—the weakest performance outside the pandemic since the 2009 Great Recession, compared to 1.459 million jobs in 2024.

Economic Divergence:

The report highlighted a "K-shaped" recovery, with upper-income households maintaining spending while lower-income consumers struggle with high inflation from import tariffs and stagnant wage growth. Consumer spending decelerated from Q3's 3.5% pace, driven primarily by wealthy households drawing down savings.

Growth Drivers:

AI investments—including datacenters, semiconductors, software, and R&D—accounted for roughly one-third of GDP growth during the first three quarters of 2025, partially offsetting headwinds from tariffs and reduced immigration.

Outlook:

Economists anticipate potential growth catalysts from tax cuts generating larger refunds and continued AI investment. However, the delayed report is expected to have minimal impact on monetary policy decisions. The administration has called for lower interest rates and criticized the economic impact of government shutdowns, while planning remains uncertain given ongoing fiscal disruptions.

Market Implications:

The data confirms an affordability crisis affecting lower-income consumers and raises concerns about sustainable economic expansion amid policy uncertainty.