US GDP Growth Well Below Forecasts

The US economy expanded an annualized 1.4% in Q4 2025, the least since Q1 2025, following a 4.4% growth in Q3 and well below forecasts of 3%, the advance estimate showed. Consumer spending slowed (2.4% vs 3.5%), weighed down by a 0.1% decline in goods purchases, while services spending rose 3.4%. Meanwhile, exports fell 0.9% after surging 9.6% in Q3, and imports also declined, though at a slower pace (-1.3% vs -4.4%). Government spending and investment contracted sharply by 5.1% (vs 2.2%), subtracting 0.9 pp from overall growth, due to the government shutdown. On the other hand, fixed investment accelerated (2.6% vs 0.8%), driven by strong gains in intellectual property products (7.4% vs 5.6%) and equipment (3.2% vs 5.2%), as well as a more moderate decline in structures (-2.4% vs -5.0%). The drop in residential investment also eased (-1.5% vs -7.1%). Considering full 2025, the US economy expanded 2.2%, below 2.8% in 2024, reflecting increases in consumer spending and investment.

The US economy is expected to have grown at an annualized rate of 3.0% in Q4 2025, slowing from 4.4% in the previous quarter. According to the Atlanta Fed's GDPNow, consumer spending is anticipated to remain solid, supported by health care expenditures and gains in asset markets, though likely moderating to 2.5% from 3.5% in Q3. Investment in non-residential structures and residential construction is expected to stay subdued, while equipment investment may continue to expand, boosted by the ongoing AI boom. Inventories are projected to be largely unchanged in Q4, which would provide a positive contribution to GDP following sharp inventory declines in both Q2 and Q3. Government spending is expected to slow, with state and local expenditures showing moderate growth, while federal outlays are likely to decline following the longest government shutdown on record. On the external front, both exports and imports are forecast to rise modestly, contributing slightly to overall GDP growth.

The US economy expanded at an annualized rate of 4.4% in Q3 2025, slightly above the initial estimate of 4.3% and marking the strongest GDP growth since Q3 2023. The upward revision primarily reflected stronger exports and a smaller drag from inventories. Robust growth was driven by firm consumer spending, a rebound in exports, and higher government outlays. Consumer spending rose 3.5%, unchanged from the initial estimate and the fastest pace this year, accelerating from 2.5% in Q2. Exports surged 9.6%, revised up from 8.8% and rebounding from a 1.8% decline in the prior quarter while imports fell 4.4%, extending the decline seen in Q2. Government spending recovered (2.2% vs -0.1%), while the drag from private inventories eased significantly, subtracting just 0.12 percentage points from growth compared with 3.44 percentage points in Q2. Meanwhile, fixed investment increased 0.8%, below the initial estimate of 1% and slowing sharply from 4.4% in Q2.