Fourth-quarter GDP revised down to just 0.7% growth; January core inflation was 3.1%
Economic growth was much slower than expected in the final three months of 2025 while core inflation rose to start 2026, the Commerce Department reported Friday.
Gross domestic product, a measure of all the goods and services produced across the sprawling U.S. economy, rose at a seasonally and inflation-adjusted annual rate of just 0.7% in the fourth quarter, according to the department’s Bureau of Economic Analysis.
The first revision of the GDP reading was a sharp step down from the previous estimate of 1.4% and well below the Dow Jones consensus forecast for 1.5%. It also marked a considerable slowdown from the 4.4% gain in the prior period, hampered by a record-long government shutdown that saw government spending tumble 16.7%.
For the full year, GDP posted a 2.1% increase, or one-tenth of a percentage point lower than the previous reading. In 2024, the economy rose at a 2.8% pace.
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The inflation data “tells us that the inflation picture wasn’t looking good even before the Middle East crisis,” said Sonu Varghese, chief macro strategist for the Carson Group. “An already large headache for the Federal Reserve is going to turn into an even larger one, and it’s likely the Fed will not cut rates in 2026 and may even start talking about rate hikes later this year.”
Personal income and spending in January both increased 0.4%, against respective estimates for 0.5% and 0.3%. The personal saving rate jumped half a percentage point to 4.5%.
Within the GDP report, a proxy for demand known as private sales to private domestic purchasers increased just 1.9% in Q4, revised down by half a percentage point and a full point lower than the prior quarter.
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