U.S. economic growth decelerated sharply in the fourth quarter, expanding at just a 1.4% annualized rate compared to 4.4% in the previous quarter. The slowdown was driven by a combination of factors, including the federal government shutdown and a widening trade deficit. Economists had forecast growth of 2.8%, making the actual figure notably weaker than expectations.

The Bureau of Economic Analysis attributed roughly one percentage point of the decline to reduced federal government services during the shutdown. Meanwhile, a December surge in the trade deficit, fueled by a drop in gold exports, further weighed on growth. Imports of foreign digital equipment increased despite sweeping tariffs under President Trump, though overall imports decreased for the quarter.

Consumer spending, which accounts for the bulk of U.S. economic activity, decelerated to 2.2% year-on-year from 3.4% previously. Health care spending provided some support, but the broader slowdown signals weakening domestic demand. The report also showed inflation pressures building, with the core PCE price index rising 0.4% month-on-month and 3.0% year-on-year, potentially complicating the Federal Reserve's path forward.