- GDP 2nd estimate 0.7% versus 1.4% preliminary. This is well below the expectations going into the 1st cut of the GDP (was expecting 3.0%).
- GDP Deflator 3.8% vs 3.6% est. and 3.7% preliminary
- Core PCE 2.7% versus 2.7% estimate and 2.7% preliminary
- GDP sales preliminary 0.4% versus 1.2% preliminary.
- Consumer spending 2.0% versus 2.4% preliminary
- PCE price is preliminary 2.9% versus 2.9% preliminary
- PCE X food, energy, and housing 2.8% versus 2.8% preliminary
- PCE services excluding energy and housing 3.6% versus 3.6% preliminary
Of note, the initial estimate for GDP growth was 3.0%, but subsequent revisions showed weaker underlying components. Government spending was reduced due to the effects of the government shutdown, contributing to the downward revision. Net exports were also revised lower, with exports accounting for the largest portion of that decline. In addition, both investment and consumer spending were adjusted lower compared to the first estimate, signaling softer demand than initially reported.
Real final sales to private domestic purchasers—a key measure of underlying demand combining consumer spending and private fixed investment—rose 1.9% in Q4, revised down from the prior estimate by 0.5 percentage point.
Inflation measures were little changed. The price index for gross domestic purchases increased 3.8%, revised up slightly by 0.1 percentage point. The PCE price index rose 2.9%, unchanged from the previous estimate, while core PCE (excluding food and energy) increased 2.7%, also unchanged from the prior estimate.
Details from the BEA
Real GDP increased at an annual rate of 0.7 percent (0.2 percent at a quarterly rate 1) in the fourth quarter, a downward revision of 0.7 percentage point from the previous estimate, reflecting downward revisions to exports, consumer spending, government spending, and investment.
- The downward revision to exports reflected a downward revision to services (led by charges for the use of intellectual property), reflecting updated data from BEA’s International Transactions Accounts.
- The downward revision to consumer spending reflected a downward revision to services that was partly offset by an upward revision to goods. Within services, the largest contributor to the downward revision was health care (both hospital and nursing home services as well as outpatient services), based on new fourth-quarter data from the U.S. Census Bureau Quarterly Services Survey (QSS). Within goods, the upward revisions were widespread, based on revised U.S. Census Bureau Monthly Retail Trade Survey data for November and December.
- Within government, the revision primarily reflected a downward revision to state and local government structures investment, based on revised October and new November and December U.S. Census Bureau Value of Construction Put in Place (VPIP) data.
- Within investment, the revision reflected downward revisions to structures and intellectual property products. The revision to structures was led by manufacturing structures, based on revised October and new November and December U.S. Census Bureau VPIP data. The revision to intellectual property products primarily reflected a downward revision to software, based on new U.S Census Bureau QSS data.
Impact of the Shutdown from the BEA
The partial federal government shutdown from October 1 to November 12, 2025 weighed on Q4 growth. While the full impact cannot be precisely measured because it is embedded in broader data, the BEA estimates that reduced labor services from furloughed federal workers lowered real GDP growth by about 1.0 percentage point in the fourth quarter.
Because furloughed employees ultimately received back pay, the shutdown did not affect current-dollar federal compensation, but it temporarily raised the measured price of federal employee compensation.
For 2025
Real GDP grew 2.1% in 2025, revised down slightly by 0.1 percentage point from the prior estimate, with growth primarily driven by increases in consumer spending and investment.
On the inflation side, the price index for gross domestic purchases rose 2.6%, unchanged from the previous estimate. The PCE price index also increased 2.6%, while core PCE (excluding food and energy) rose 2.8%, both unchanged from earlier estimates.
Looking ahead to 2026
The Q1 estimate for GDP from the Atlanta Fed GDP model estimates Q1 growth at 2.7% given released data. Having said that, the model estimated Q4 growth at 3.0% going into the 1st estimate. When it came in at 1.4% it showed a crack from prior model estimates. That may have been skewed by the government shutdown.
Will the bounce back be greater than estimated in Q1? What will the war impact (higher energy costs) flow through? Time will tell, but data will be more volatile.
For the BEA release, CLICK HERE
