By Lucia Mutikani
WASHINGTON, Feb 20 (Reuters) – U.S. economic growth slowed more than expected in the fourth quarter amid disruptions from last year’s government shutdown and a moderation in consumer spending, but tax cuts and investment in artificial intelligence were expected to support activity this year.
Gross domestic product increased at a 1.4% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of fourth-quarter GDP on Friday. Economists polled by Reuters had forecast GDP rising at a 3.0% pace. The survey was, however, completed before data on Thursday showing the trade deficit widening to a five-month high in December.
The economy grew at a 4.4% pace in the third quarter. The nonpartisan Congressional Budget Office estimated the government shutdown would subtract 1.5 percentage points from fourth-quarter GDP through fewer services provided by federal workers, lower federal spending on goods and services and a temporary reduction in Supplemental Nutrition Assistance Program benefits.
The CBO forecast most of the lost output would eventually be recovered, though between $7 billion and $14 billion would not.
Ahead of the release of the report, President Donald Trump posted on social media that the “Shutdown cost the U.S.A. at least two points in GDP. That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES.”
The report, which was delayed by the record 43-day government shutdown, highlighted a jobless economic expansion as well as a “K-shaped” economy, in which upper-income households are doing well while lower-income consumers are struggling amid high inflation from import tariffs and stalling wage growth.
Those conditions have created what economists and Trump’s opponents call an affordability crisis. Only 181,000 jobs were added last year, the fewest outside the pandemic since the 2009 Great Recession, and down from 1.459 million in 2024.
Growth in consumer spending slowed from the third quarter’s brisk 3.5% pace. Economists say spending has largely been driven by higher-income households and has been at the expense of saving as inflation eroded buying power.
Consumer spending could get a tailwind from what economists anticipate will be larger tax refunds this year because of tax cuts. Economists estimated AI, including data centers, semiconductors, software and research and development, accounted for a third of GDP growth in the first three quarters of 2025, blunting the hit from tariffs and reduced immigration. The stale report will probably have no impact on monetary policy.
(Reporting by Lucia Mutikani, editing by Chizu Nomiyama)
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