By Bryan Mena, NCS
Washington (NCS) — US financial progress was even weaker than beforehand reported on the finish of last yr, dragged down by the historic authorities shutdown, even earlier than America’s war with Iran.
Gross home product, the broadest measure of financial output, expanded at an annualized price of 0.7% within the October-through-December interval, the Commerce Department mentioned Friday in its second estimate. That’s down sharply from the 1.4% price initially reported, and a a lot slower tempo than the 4.4% within the third quarter.
The newest estimate revised a number of output classes decrease, together with exports, shopper spending and authorities outlays. The largest downward revision was to exports, which contribute to GDP, revised right down to -3.3%, a lot decrease than the -0.9% reported within the first estimate.
The authorities shutdown was nonetheless the largest issue subtracting from GDP within the fourth quarter, shaving off 1.16 share factors. Economists extensively anticipate most of these losses to be recouped within the present quarter that stretches from January by way of the tip of March.
“The big downward revision in GDP is a gut check going into this energy crunch, increasing the risk of stagflation,” David Russell, world head of market technique at TradeStation, wrote in analyst word Friday.
The fourth quarter capped a tumultuous yr for the US economy as Trump waged a bid to reshape world commerce and companies ramped up investments in AI whereas slamming the brakes on hiring. The economy expanded just 2.1% in 2025, the weakest annual tempo since 2020, and earlier than that, since 2016.
Yet, regardless of the uncertainty, American consumers continued to open their wallets, although it’s unclear how for much longer which will stay the case within the face of a weakening labor market and traditionally weak shopper attitudes towards the economy.
The US economy is at present dealing with the financial results of Trump’s war on Iran, which has already despatched oil costs skyrocketing and pushed up prices at the pump for Americans, with more inflation pain expected if the war broadens or is extended.
The oil shock comes because the US labor market stays in a precarious state, with employers shedding 92,000 jobs in February because the unemployment price rose to 4.4% from 4.3%.
In one other troublesome signal, American customers weren’t speeding to spend extra money initially of this yr as issues about job safety grew, a separate report from the Commerce Department confirmed Friday.
Consumer spending held agency at a 0.4% price in January from December, in response to Personal Consumption Expenditures knowledge. That issues for the broader economy, since spending represents about two-thirds of US financial exercise.
However, the Federal Reserve’s most popular inflation gauge confirmed slight enchancment in January, in response to the identical report. On an annual foundation, it grew at 2.8% versus 2.9% in December. And on a month-to-month foundation, inflation was up 0.3% in comparison with 0.4% in December.
“This is only going to head higher as the energy shock comes through,” Sonu Varghese, chief macro strategist at Carson Group, wrote in commentary issued Friday. “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.”
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NCS’s Elisabeth Buchwald contributed reporting.