Did a government shutdown that lasted nearly the entire fourth quarter take a big bite out of the US economy? Donald Trump thinks so, and perhaps economists missed the potential impact.
Today's report on real GDP in Q4 turned into a disappointment. After two quarters of sharp growth, the US economy only expanded by 1.4% (annualized) in the final three months, well below analyst expectations:
Real gross domestic product (GDP) increased at an annual rate of 1.4 percent in the fourth quarter of 2025 (October, November, and December), according to the advance estimate released today by the U.S. Bureau of Economic Analysis. In the third quarter, real GDP increased 4.4 percent.
The advance report for the fourth quarter of 2025, originally scheduled for January 29, 2026, was rescheduled due to the October–November 2025 government shutdown.
The contributors to the increase in real GDP in the fourth quarter were increases in consumer spending and investment. These movements were partly offset by decreases in government spending and exports. Imports, which are a subtraction in the calculation of GDP, decreased.
The tables in the full release indicate that the government shutdown amounted to a significant shock in Q4. Overall government spending and investment fell by -5.1% from Q3, but federal spending as a subcategory dropped by -16.6%. That was the steepest drop in four years, more than double 2022Q1's -8.2%, a quarter which had a topline real GDP result of -1.0%. That is clearly the result of the sustained shutdown that lasted from the start of Q4 to nearly halfway through December.
Other internal measures look stronger, perhaps especially considering the impact of the shutdown. Consumer spending rose 2.4%, off the pace from Q3's 3.5% but almost equal to Q2's 2.5%. Gross private domestic investment had its best quarter since Q1, coming in with a solid 3.8% increase. Both exports (-0.9%) and imports (-1.3%) fell, but GDP-boosting exports had a very large increase in Q3 (9.6%), which may have been the result of demand-shifting with the shutdown approaching.
One relative bright spot: final sales to private domestic purchasers rose by 2.4%, indicating that the big drain in Q4 was in the loss of government economic activity. However, all of that will likely shift into Q1 as those activities resumed when the shutdown ended. Donald Trump angrily made this point on Truth Social an hour or so ago, with a swipe at Jerome Powell included:
The Democrat Shutdown cost the U.S.A. at least two points in GDP. That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES. “Two Late” Powell is the WORST!!! President DJT
It probably cost at least one full point off of the GDP, given the number on final sales to domestic purchasers. And since Democrats didn't get anything at all for that holdout, it's doubly dumb.
CNBC took notice of the big miss on expectations, but also on better news regarding inflation:
Gross domestic [product] rose at an annualized rate of just 1.4%, according to Commerce Department numbers released Friday. Economists surveyed by Dow Jones had been looking for a 2.5% gain.
For the full year in 2025, the U.S. economy grew at a 2.2% pace, down from the 2.8% increase in 2024. ...
The core personal consumption expenditures price index, which excludes food and energy, rose 3% in December, according to a separate release. That matched the consensus forecast but kept the pivotal inflation measure well above the Fed’s 2% target.
On a headline basis, the PCE index accelerated 2.9%, or 0.1 percentage point higher than expected.
Had the shutdown not occurred, we'd probably have seen a respectable GDP number of 2.5-3% in Q4 and an annual GDP that finished in the same range. With nearly all of the delayed government activity pushed off into this quarter, we can probably expect a far more robust Q1 in 2026. That's still plenty of time for Trump's economic arguments in the midterms, and the strong number on private investment suggests that capital understands the opportunities ahead.
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