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Economic Slowdown
Greetings!
The U.S. economy was much weaker than expected in Q4 2025, according to the Commerce Department. The Gross Domestic Product only increased at an annualized rate of 1.4%, well below the predicted 2.5%. Overall, the U.S. economy grew by 2.2% in 2025, down from the 2.8% rise in 2024.
Although the Department estimated that the longest government shutdown reduced growth by about 1 percentage point due to missed spending and investment, the exact impact “cannot be quantified.”
Furthermore, data show a widening in December’s trade deficit after a boost in growth in the middle of the year, as the goods and services trade gap expanded from the previous month to $70.3 billion, resulting in a full-year deficit of $901.5 billion, one of the largest in data back to 1960. Under the influence of the recent tariffs, the value of imports, including gains in computer accessories and motor vehicles, rose 3.6%, while exports of goods and services declined 1.7%. Once adjusted for price changes, which are reflected in the real GDP measurement, the merchandise trade deficit widened to $97.1 billion in December, the most since July.
Thanks to the significant boost in artificial intelligence, business investment increased by 3.7%. However, when excluding computer equipment and software, business investment has fallen in each of the last three quarters.
Americans Spending Less
Even more worrying is the slowdown in consumer spending, which makes up the largest part of economic activity, and slowed to 2.4% from 3.5% in the previous period. Health care spending, hardly a discretionary expense, increased to a record share of the GDP.
Consumers are closely watching their wallets as inflation continues to rise. According to the latest Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve Bank’s preferred inflation measure—it increased 0.4% in December after rising 0.2% in November. PCE inflation rose 2.9% year-over-year, up from 2.8% in November. The core PCE, excluding the more volatile prices of food and energy, increased more than expected by 0.4% month-over-month and 3.0% year-over-year, after gaining 2.8% in November. When adjusted for inflation, consumer spending gained 0.1%, setting it on a slow growth trajectory heading into the first quarter.
According to the February issue of the University of the Michigan Consumer Sentiment Report, U.S. consumer sentiment increased less than expected in February, with 46% spontaneously mentioning that high prices were eroding their personal finances.
We’ll continue to keep you updated as conditions evolve. In the meantime, if you’d like to talk about buying, selling, or refinancing in today’s market, feel free to call or email. We’ll be happy to help.
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