US Economic Growth Update: GDP Revised Down to 0.7% as Core Inflation Reaches 3.1%
US Economic Growth Update: GDP Revised Down to 0.7% as Core Inflation Reaches 3.1%
New economic data suggests the U.S. economy ended 2025 with slower momentum than previously estimated, while inflation pressures remained elevated at the start of 2026.
According to updated figures from the U.S. Commerce Department, gross domestic product, or GDP, grew at an annualized rate of just 0.7 percent in the fourth quarter of 2025. This represents a significant downward revision from the earlier estimate of 1.4 percent and marks a sharp slowdown compared with the 4.4 percent growth recorded in the third quarter.
Economists say the weaker performance reflects a combination of factors, including slower consumer spending, changes in trade activity, and a notable drop in government expenditures.
One of the biggest contributors to the slowdown was a lengthy government shutdown, which led to a 16.7 percent decline in government spending during the fourth quarter. Because government spending is included in GDP calculations, this drop had a measurable impact on overall economic output.
Despite the weaker finish to the year, the U.S. economy still expanded 2.1 percent for all of 2025, though that was slower than the 2.8 percent growth recorded in 2024.
Consumer spending continued to support economic activity, but it also moderated toward the end of the year. Household spending grew 2 percent in the fourth quarter, down from 3.5 percent growth in the previous quarter. Since consumer spending accounts for roughly two-thirds of U.S. economic activity, even modest changes can significantly influence overall growth.
At the same time, inflation remains a concern for policymakers. The Personal Consumption Expenditures price index, the Federal Reserve’s preferred measure of inflation, rose 0.3 percent in January, bringing the annual rate to 2.8 percent.
More importantly, core PCE inflation, which excludes food and energy prices, reached 3.1 percent year over year, indicating that underlying price pressures remain above the Federal Reserve’s long-term target of 2 percent.
Additional economic indicators also showed mixed signals. Durable goods orders, which track demand for long-lasting manufactured products such as vehicles and machinery, were unchanged in January, suggesting weaker momentum in the manufacturing sector.
Adding further uncertainty, oil prices have risen sharply due to geopolitical tensions in the Middle East, with Brent crude approaching 100 dollars per barrel. Higher energy prices can increase transportation and production costs, potentially adding more pressure to inflation in the months ahead.
Some analysts warn that the combination of slower economic growth and persistent inflation could raise concerns about stagflation, a challenging economic environment where growth slows while prices continue rising.
Looking ahead, the Federal Reserve is expected to review these developments during its upcoming policy meeting. Financial markets currently anticipate that the central bank will keep interest rates unchanged in the near term while monitoring inflation and economic conditions.
Overall, the latest data suggests the U.S. economy entered 2026 with slower growth but still-elevated inflation, leaving policymakers with a delicate balance as they consider future monetary policy decisions.
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