US economy grew meager 0.7% in Q4 in big downgrade from initial estimate — here's why

• Federal government spending plunged 16.7% due to the shutdown, reducing Q4 growth by 1.16 percentage points
• Consumer spending growth slowed to 2% from 3.5% in Q3, while exports fell 3.3% and underlying economic strength grew just 1.9% versus 2.9% previously
• Full-year 2025 GDP growth was 2.1%, down from 2.8% in 2024, while job creation averaged fewer than 10,000 monthly—the weakest hiring outside recessions since 2002

Summary: US Q4 GDP Revised Down to 0.7% Growth

The US economy grew at just 0.7% annually in Q4 2025, according to the Commerce Department's revised estimate released Friday—a significant downgrade from the initial projection and half the expected rate. Economists had anticipated an upward revision, making this weaker reading particularly concerning.

Key Figures:

• Q4 GDP: 0.7% (down from Q3's 4.4% and Q2's 3.8%)
• Full-year 2025 GDP: 2.1% (revised down from 2.2% initial estimate; compared to 2.8% in 2024 and 2.9% in 2023)
• Federal government spending plunged 16.7%, subtracting 1.16 percentage points from Q4 growth

Primary Drivers of Slowdown:

The government shutdown was a major factor, severely impacting federal spending. Consumer spending growth decelerated to 2% (from 3.5% in Q3 and below the initial 2.4% estimate). Business investment excluding housing increased 2.2%, likely driven by AI investments, but slower than Q3's 3.2%. Exports fell 3.3%, worse than initially reported.

Core economic strength indicators showed underlying weakness, with a key category measuring consumer spending and private investment growing just 1.9%—down from 2.9% in Q3 and below the 2.4% initial estimate.

Market Context:

The economic stumble occurs amid President Trump's policies including import tariffs and mass deportations. The job market has shown significant weakness, with employers adding fewer than 10,000 jobs monthly in 2025—the weakest hiring outside recessions since 2002.

Jim Baird of Plante Moran Financial Advisors noted the economy "not only slowed but stumbled into the finish line." The final Q4 GDP estimate is due April 9.