WASHINGTON: U.S. economic growth in the fourth quarter of 2025 was far weaker than first reported, while January inflation remained elevated in the latest personal consumption data. The Bureau of Economic Analysis said real gross domestic product increased at an annual rate of 0.7% in the October through December period, down from the 1.4% advance estimate and sharply below the 4.4% pace recorded in the third quarter. In a separate release, the bureau said the January PCE price index excluding food and energy rose 3.1% from a year earlier, while the overall index increased 2.8%.
The GDP revision reflected broad downgrades across the economy. The agency said exports, consumer spending, government spending and investment were all revised lower from the initial estimate, while imports declined less than previously estimated. Consumer spending and investment still added to fourth quarter output, but those gains were partly offset by decreases in government spending and exports. Within consumer spending, the largest downward revision was in services, led by health care, while the government revision centered on weaker state and local structures investment and the investment revision was led by structures and software.
A closely watched measure of underlying domestic demand also softened. Real final sales to private domestic purchasers, which combines consumer spending and gross private fixed investment, rose at a 1.9% annual rate in the fourth quarter, revised down from 2.4%. That compared with a 2.9% increase in the July through September quarter. The bureau also said the price index for gross domestic purchases increased 3.8% in the quarter. The quarterly PCE price index rose 2.9%, while the PCE price index excluding food and energy increased 2.7%.
January Spending Shows Limited Real Gain
January household figures showed income and spending continued to rise, though inflation kept real consumption growth modest. Personal income increased $113.8 billion, or 0.4%, in January, while disposable personal income rose 0.9%. Personal consumption expenditures increased $81.1 billion, also 0.4%, and real PCE rose 0.1%. The increase in current-dollar spending reflected a $105.7 billion rise in services outlays that was partly offset by a $24.6 billion decline in spending on goods. Personal outlays, which include spending, interest payments and transfer payments, increased $85.8 billion.
Price pressures remained firm in the January report. From the prior month, the PCE price index increased 0.3%, while the measure excluding food and energy rose 0.4%. From a year earlier, the overall PCE price index was up 2.8% and the core measure rose 3.1%. The bureau said personal saving totaled $1.05 trillion in January, bringing the saving rate to 4.5% of disposable personal income. Income gains in the month were driven mainly by increases in compensation, personal dividend income and personal current transfer receipts, including a rise in Social Security benefits linked to the annual cost of living adjustment.
Shutdown Effects Remain Embedded
Both releases were delayed from their original February publication dates because of the October-November 2025 federal government shutdown. In the GDP report, the bureau said the full effects of the shutdown could not be separately identified because they are embedded in the source data used to compile the estimates. It added, however, that the reduction in labor services supplied by federal employees subtracted about 1 percentage point from fourth quarter real GDP growth. For October prices, the bureau said it derived missing consumer price data by using the geometric mean of the September and November CPI readings.
For the full year, real GDP increased 2.1% in 2025 from the 2024 annual level, revised down 0.1 percentage point from the earlier estimate. The bureau said that annual gain primarily reflected increases in consumer spending and investment. The annual price index for gross domestic purchases increased 2.6%, while the annual PCE price index also rose 2.6% and the annual measure excluding food and energy increased 2.8%. The bureau said its next release on fourth quarter GDP, GDP by industry and corporate profits is scheduled for April 9 at 8:30 a.m. EDT. – By Content Syndication Services.