The U.S. Economy continued to expand at the close of 2025, though growth slowed in the final three months of the year. A report released Friday by the Commerce Department showed the economy grew at an annual rate of 1.4% in October, November, and December, compared to a robust 4.4% pace in the preceding quarter.
For the entirety of 2025, the nation’s gross domestic product increased by 2.2%, a slight deceleration from the 2.4% growth recorded in 2024. This growth was largely fueled by consistent consumer spending and increasing business investment, particularly in the rapidly developing field of artificial intelligence.
“The consumer drives the economic train,” said Mark Zandi, chief economist at Moody’s Analytics. He noted that spending was bolstered by higher-income Americans benefiting from rising home and stock values, while those in lower and middle income brackets faced greater financial pressures.
Despite the overall expansion, economists are observing a “K-shaped” recovery, where upper-income households are thriving while lower-income consumers struggle with high inflation and stagnant wage growth. This has created what some, including opponents of President Trump, are calling an affordability crisis.
“We’ll end the year still on a solid note in terms of growth, but it doesn’t really translate to feel as good as it looks on paper to most Americans,” explained Diane Swonk, chief economist at consulting firm KPMG.
Economists surveyed by Reuters predicted a 3.0% annualized GDP increase for the fourth quarter, though the Atlanta Federal Reserve revised its estimate down to 3.0% following data showing a widening trade deficit in December. The Commerce Department’s report was delayed due to the recent 43-day government shutdown.
A significant factor contributing to the economic growth was a surge in business investment, reversing a two-year slump. Companies are increasingly investing in artificial intelligence and related technologies to boost productivity and profits. Core orders for durable goods climbed 0.6% in December, marking the largest annual increase in business investment in three years.
“AI companies and their suppliers – chip makers such as Nvidia – are plowing hundreds of billions of dollars into the technology,” reported Jeffry Bartash of MarketWatch. “All this spending is filtering down to other companies and igniting a broader increase in investment.”
However, the labor market is showing signs of cooling. U.S. Employers added just 181,000 jobs in 2025, a significant decrease from the 1.4 million jobs added the previous year. This slowdown in hiring raises concerns about potential increases in unemployment and a possible slowdown in consumer spending.
“That just can’t hold,” Zandi said. “If that continues, I think we’ll start to see unemployment tick higher, consumers become more cautious, and the economy will struggle. So hopefully we start to see some job growth here in the not too distant future.”
The economic landscape is also being shaped by government policies, including tariffs implemented by the Trump administration. While initially appearing to dampen investment, spending rebounded robustly, aided by a new tax bill passed last summer that incentivizes business investment through immediate tax deductions.
Despite these positive developments, challenges remain. Residential investment remains lackluster, and affordability issues continue to plague the housing market. Mortgage rates have fallen slightly, but sales and construction remain sluggish.
“One dark spot in the economy that continues to be a problem in 2026 will be housing,” Zandi stated. “Affordability is a real issue there. People just can’t afford to buy homes at these house prices and mortgage rates.”
Fluctuations in international trade also played a role in the economic seesaw of 2025, with import surges and subsequent tariff implementations impacting GDP figures throughout the year.
