GDP grew 2.2% in 2025. The economy might do better this year.

By Jeffry Bartash

Economy was hurt in the fourth quarter by the government shutdown

The U.S. economy grew at an above-average pace for a fifth straight year.

The numbers: The U.S. expanded at a subpar 1.4% annual pace in the fourth quarter of 2025, depressed by a long federal shutdown that caused government spending to plunge.

Still, the economy grew at a solid 2.2% rate for all of 2025, a fifth straight year of above-average growth, the latest report on U.S. gross domestic product showed. GDP is the official scorecard for the economy.

The economy could turn in an even stronger performance this year. The Federal Reserve has cut interest rates, businesses are pouring money into new technologies, unemployment is low and the effects of tariffs are expected to fade.

Breaking news: Supreme Court rejects Trump's tariffs. But he's not out of options.

The increase in GDP fell well shy of Wall Street expectations. Analysts polled by the Wall Street Journal had forecast a 2.5% growth rate in the fourth quarter.

Most of the shortfall was tied to the record 43-day government shutdown last fall. A drop in federal spending lopped almost a full percentage point off GDP. The furlough of hundreds of thousands of workers without pay also dented consumer spending.

Absent the government shutdown, GDP likely would have come close to Wall Street's target.

Until very recently, the economy's upper speed limit was generally seen to be around 1.8%. That's how fast it is supposed to be able to grow without stoking ruinous inflation.

In a social-media post before the GDP report was released, President Donald Trump said the shutdown had cost the U.S. "at least two points in GDP."

Key details: Consumer spending - the main engine of the economy - rose at a decent 2.4% pace in the fourth quarter. The three-month period ran from October to December.

Spending had surged at a 3.5% clip in the third quarter, but that wasn't sustainable, economists say.

Business investment in equipment and software was very strong again in the fourth quarter. Outlays increased at a 3.2% rate on equipment and 7.4% on intellectual property.

Companies are pouring hundreds of billions of dollars into new technologies such as artificial intelligence to try to improve productivity and profits.

Businesses produced more inventories, or unsold goods, in the fourth quarter to give a small boost to GDP. The trade deficit was neutral.

Sometimes inventories and trade balances can exaggerate the ups and downs in GDP, but that wasn't the case in the fourth quarter.

Big picture: The economy powered through a turbulent 2025 - much to the surprise of economists - and it appears primed for another year of above-average growth.

The ultimate fate of the Trump tariffs, following Friday's high-court ruling against the administration's use of economic-emergency powers as legal grounds, could play a key role again in how fast the economy grows.

Some economists say the effects of tariffs are fading, and some duties have been rolled back during this midterm-election year.

See: Trump economist Kevin Hassett says New York Fed staff should be disciplined over study finding Americans paid for Trump's tariffs

Looking ahead: "While this morning's GDP report came in below expectations, the broader picture suggests moderation rather than deterioration in economic growth," said Steve Rick, chief economist at TruStage.

Market reaction: The Dow Jones Industrial Average and S&P 500 made moves higher in midmorning trading, reversing earlier declines as the Supreme Court tariff decision emerged.

-Jeffry Bartash

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02-20-26 1026ET