US Economic Growth Slows to 1.4% in Q4 2025, Inflation Remains Elevated

The US economy experienced a significant slowdown in growth during the fourth quarter of 2025, with real gross domestic product (GDP) increasing at an annualized rate of 1.4%, according to an advance estimate released by the U.S. Bureau of Economic Analysis (BEA). This marks a considerable deceleration from the 4.4% growth recorded in the third quarter.

GDP Growth Details

The increase in real GDP in the fourth quarter was primarily driven by increases in consumer spending, and investment. However, these gains were partially offset by decreases in government spending and exports. Notably, imports decreased, which positively contributed to the GDP calculation as imports are a subtraction in the GDP formula. The 2025 economic growth closed at 2.2%, a decrease from the 2.8% recorded in 2024.

Inflation Concerns Persist

Inflation also presented a concern in December, exceeding expectations. The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation, rose by 0.4% month-over-month, reaching levels not seen since February 2025. Analysts had anticipated a 0.3% increase.

Year-over-year, inflation grew by 2.9%, matching the previous month’s rate but defying expectations of a 2.8% increase. The “core” PCE, which excludes volatile food and energy prices, increased by 0.4%, doubling the previous month’s rate and surpassing the forecasted 0.3%. The core PCE grew to 3% year-over-year, a high since April 2025.

Income and Spending Trends

Personal income increased by $86.2 billion (0.3% at a monthly rate) in December, as reported by the BEA. Disposable personal income (DPI) rose by $75.7 billion (0.3%), and personal consumption expenditures (PCE) increased by $91.0 billion (0.4%). Personal saving was $830.8 billion in December, with a personal saving rate of 3.6%.

Job Creation and Economic Disconnect

The BEA report also highlighted a disconnect between economic growth and job creation. Despite the 2.2% growth in 2025, employer-reported job creation fell below 200,000 for the year, the lowest figure since 2020.

Trade Deficit Widens

Adding to the economic picture, the U.S. Goods and services trade deficit increased in November 2025, rising from $29.2 billion in October to $56.8 billion, as exports decreased and imports increased [Bureau of Economic Analysis].

These figures suggest a complex economic landscape as the US moves forward into 2026, with slowing growth and persistent inflationary pressures.