The United States experienced significantly slower economic growth in the fourth quarter of 2025, with GDP rising at a seasonally and inflation-adjusted annual rate of just 0.7%, according to the Commerce Department's report released on March 13, 2026 [1]. This figure represents a substantial downward revision from the previous estimate of 1.4% and falls well below the Dow Jones consensus forecast of 1.5%. The slowdown is notable compared to the 4.4% gain in the prior period, which was affected by a record-long government shutdown that led to a 16.7% drop in government spending [1]. For the full year, GDP increased by 2.1%, a tenth of a percentage point lower than the previous reading, while the economy grew at a 2.8% pace in 2024 [1].
The downward revision was attributed to adjustments in consumer and government spending as well as exports, with a smaller decline in imports than previously estimated. Consumer spending rose 2% for the quarter, following a 0.4 percentage point downward revision, marking a decrease from the 3.5% increase in the third quarter. The largest contributor to the downward revision was reduced spending on services, particularly health care [1].
On the inflation front, January readings were mostly in line with expectations but remained above the Federal Reserve's preferred levels. The personal consumption expenditures (PCE) price index, the Fed's main inflation gauge, posted a seasonally adjusted gain of 0.3% for January, resulting in an annual rate of 2.8%. Core PCE inflation, which excludes volatile food and energy costs, rose 0.4% in January and 3.1% over the past 12 months, 0.1 percentage point higher than December [1].
A separate Commerce Department report indicated that orders for durable goods were flat in January, missing the estimate for a 1.3% gain but improving from a 0.9% decline in December. Excluding transportation, orders increased by 0.4% [1]. Analyst David Russell, global head of market strategy at TradeStation, commented, "The big downward revision in GDP is a gut check going into this energy crunch, increasing the risk of stagflation. The soft January durable goods data also suggests the economy entered this crisis weaker than hoped. This creates challenges for investors with PCE inflation still running well above the Fed's target" [1].
CONCLUSION
The sharp downward revision in US GDP growth and persistently high core inflation highlight mounting economic challenges. With consumer spending and durable goods orders showing weakness, analysts warn of increased stagflation risks. Investors face a difficult environment as inflation remains above the Federal Reserve's target.