US economic growth slowed at the end of last year. The Commerce Department reported that the GDP increased by just 1.4% in the fourth quarter. This was a surprise, as many economists expected a 3% increase. A government shutdown and reduced consumer spending were major factors behind this slowdown.
In the third quarter, the economy had grown at a robust 4.4%. However, the Congressional Budget Office (CBO) estimated that the shutdown took a significant toll, reducing GDP by about 1.5 percentage points. This was due to fewer services from federal workers and cuts in federal spending. The CBO believes that most of the lost output will eventually bounce back, but between $7 billion and $14 billion may not be recovered.
Before the report was released, former President Donald Trump claimed on social media that the shutdown cost the U.S. at least two points in GDP, calling for no more shutdowns and lower interest rates.
This report sheds light on a troubling trend: a “K-shaped” economy. While wealthier households are doing well, lower-income families are now facing high inflation and stagnating wages. Economists often refer to this disparity as an affordability crisis. In fact, only 181,000 jobs were added last year, the lowest number outside of the pandemic since the Great Recession in 2009.
Consumer spending also lost momentum, dropping from a strong 3.5% growth in the previous quarter. Much of the spending came from higher-income households, whose increased purchases came at the cost of savings. However, larger tax refunds this year could benefit spending, as tax cuts are expected to have a positive impact.
Interestingly, investment in artificial intelligence (AI) has had a noticeable effect on growth. Economists estimate that AI-related sectors contributed a third of GDP growth in the first three quarters of last year. This investment has helped mitigate the negative effects of tariffs and reduced immigration. Despite the report’s disappointing figures, experts believe it won’t hinder current monetary policy.
In today’s economy, understanding the relationship between government action and economic performance is crucial. Social media trends reflect ongoing debates about economic strategies and their impacts, showing that citizens are very much engaged with these issues. As we navigate an uncertain economic landscape, it’s clear that shifts in policy and consumer behavior will continue to shape our financial future. For further insights into the economy, you may explore this report from the Bureau of Economic Analysis.
