US economy slows sharply to 0.5% in Q4 after government shutdown

The US economy grew at a modest 0.5% annual rate in the fourth quarter, reflecting the impact of last fall’s 43-day government shutdown, the Commerce Department reported Thursday (April 9), revising its earlier estimate of 0.7%.

This slowdown follows strong growth in previous quarters, with the economy expanding 4.4% in Q3 and 3.8% in Q2. The decline in federal government spending and investment, which fell at a 16.6% annual pace, shaved 1.16 percentage points off fourth-quarter GDP.

Consumer spending, a key driver of the economy, rose 1.9%, slightly below prior estimates and down from 3.5% in the second quarter. Spending on goods, including automobiles and apparel, grew just 0.3%, a significant slowdown from the 3% growth recorded in the July-September period.

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For all of 2025, the economy grew 2.1% last year, slower than 2.8% in 2024 and 2.9% in 2023. Business investment, excluding housing, increased at a 2.4% pace, likely reflecting money being poured into artificial intelligence, but the increase was down from 3.2% in the third quarter.

A category within the GDP data that measures the economy’s underlying strength weakened from October through December, growing at a 1.8% clip, down from 2.9% in the third quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.

The economic outlook for this year is hazy after the U.S.-Israeli war with Iran drove up energy prices and disrupted global commerce.

America’s job market slumped last year — recording the weakest hiring outside a recession since 2002 — but has been up and down so far in 2026: Employers added a healthy 160,000 jobs in January, slashed 133,000 in February, then created a surprising 178,000 in March.

Also Read: US service sector cools in March, inflation heating up amid Iran war

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP. The first look at January-March economic growth is due April 30.