The U.S. economy appears to have cooled from the spring and summer surge, but still posted solid growth in the fourth quarter despite a string of headwinds. Forecasters expect the Commerce Department's delayed advance GDP estimate to show growth slowed from the prior quarter, a result of disruptions tied to last years 43-day federal government shutdown and a moderation in consumer spending.
Economists surveyed ahead of the Commerce Departments report projected gross domestic product rose at a 3.0% annualized rate in the fourth quarter, down from a 4.4% pace in the July-September period. That outlook was reached before data released on Thursday showing the U.S. trade deficit widened to a five-month high in December - a deterioration that prompted the Atlanta Federal Reserve to trim its GDP estimate to 3.0% from 3.6%.
The Commerce Departments release was delayed because of the record 43-day government shutdown. The nonpartisan Congressional Budget Office subsequently estimated the shutdown would subtract 1.5 percentage points from fourth-quarter GDP, citing fewer services delivered by federal employees, reduced federal purchases of goods and services and a temporary pullback in Supplemental Nutrition Assistance Program benefits. The CBO added that most of the lost output would be recovered over time, though between $7 billion and $14 billion would not be regained.
Those figures are part of a broader picture in which growth has been unevenly distributed across the population - a dynamic some economists and President Donald Trumps opponents characterize as an affordability crisis. The incoming GDP report is expected to underscore a "jobless" expansion and a "K-shaped" recovery where higher-income households are prospering while lower-income consumers face strain from elevated inflation driven by tariffs and sluggish wage growth.
"Well end the year still on a solid note in terms of growth, but it doesnt really translate to feel as good as it looks on paper to most Americans," said Diane Swonk, chief economist at consulting firm KPMG.
Analysts also highlighted the mixture of shocks influencing activity. "You have a confluence of shocks affecting the U.S. economy," said Gregory Daco, chief economist at EY-Parthenon. "You have on the one hand the drag from higher prices, tariffs, trade restrictions and reduced immigration, but also the boost from AI investment and the continued strong momentum in terms of stock prices supporting ongoing spending by the more affluent consumers."
Forecasters expect consumer spending - a key GDP component - to have cooled from the third quarters brisk 3.5% gain. Economists say spending in recent quarters has been concentrated among higher-income households and sustained in part by drawing down savings as inflation eroded purchasing power. "Getting richer is one thing, but most households rely on incomes to pay bills, and real disposable income pretty much stalled in the quarter," said Sal Guatieri, a senior economist at BMO Capital Markets.
Still, consumer demand may receive a lift from larger tax refunds this year stemming from recent tax cuts, according to economists. Business investment is expected to remain a bright spot - particularly spending tied to artificial intelligence. The surge in imports reported for December was driven in part by capital goods - largely computer accessories and telecommunications equipment - reflecting a wave of data center construction to support AI deployments. That import activity should mitigate the drag on GDP from trade, forecasters said.
Economists estimated that AI-related activity - including data centers, semiconductors, software and research and development - made up about one-third of GDP growth in the first three quarters of 2025, helping blunt the negative effects of tariffs and lower immigration. "Its a significant contribution from a sector that traditionally has represented a small share of the economy," Daco said. He also noted the sector has added volatility to trade data because many components and finished goods used in building that capacity are imported.
Trade overall was expected to contribute little or nothing to fourth-quarter GDP after providing a boost for two straight quarters. Inventories also represented uncertainty - they had subtracted from GDP for two consecutive quarters and remained a potential swing factor for the advance estimate. Residential investment was forecast to have declined for the fourth straight quarter as elevated borrowing costs continued to weigh on builders and prospective buyers.
Despite the delay and the uneven components within the report, economists judged the published GDP advance to be unlikely to change the Federal Reserves policy stance in the near term. Nonetheless, Fed officials are expected to scrutinize the Personal Consumption Expenditures inflation data for December, which is released alongside the GDP report. Economists polled by Reuters forecast core PCE inflation - personal consumption expenditures excluding food and energy - rose 0.3% for the month. Core PCE had risen 0.2% in November on a month-on-month basis.
On an annual basis, core PCE inflation was projected to have increased 2.9% year-on-year in December, up from 2.8% in November. The Federal Reserve targets 2.0% inflation. "The year-on-year growth rate of the core has shown essentially no progress since mid-2024," said Lou Crandall, chief economist at Wrightson ICAP. "Many Fed officials anticipate at least some improvement in the coming months, but they will want to see that show up in the actual numbers."
Broader growth projections prepared by economists included an outlook for calendar-year activity: they estimated the economy expanded 2.8% in 2024 and then slowed to a 2.2% pace in 2025. Labor market data also reflected cooling: only 181,000 jobs were added last year - the fewest outside the pandemic-era downturn since the 2009 Great Recession - down from 1.459 million in 2024.
The advance GDP release will therefore provide a snapshot of an economy that continues to post respectable headline growth even as underlying measures reveal uneven gains across income groups, varied sector contributions and notable influences from AI-related investment and trade swings.
Key points
- Fourth-quarter GDP is projected to have increased at a 3.0% annualized rate, down from 4.4% in the prior quarter - with the Commerce Department report delayed by a 43-day government shutdown.
- AI-related capital spending, including data centers and semiconductors, accounted for an outsized share of growth, estimated at about one-third of GDP expansion in the first three quarters of 2025.
- Consumer spending cooled and was concentrated among higher-income households, while trade, inventories and residential investment weighed on headline growth.
Risks and uncertainties
- The government shutdown reduced fourth-quarter output by an estimated 1.5 percentage points, with $7 billion to $14 billion of activity potentially lost permanently - affecting public services and federal purchases.
- Volatility in trade and imports - driven in part by imported AI-related capital goods - adds uncertainty to GDP calculations and could shift contributions from the trade sector.
- Stalled real disposable income and inflation pressures pose downside risks to consumer spending - a key driver of growth - particularly for lower-income households.