Real gross domestic product (GDP) was still fairly strong for 2025 despite weak first and last quarter growth due to the looming threat of price increases due to tariffs and an over a month-long government shutdown.
In the fourth quarter, real GDP increased 1.4%, significantly lower than the third quarter growth of 4.4%. The fourth quarter spanned October 1, 2025, to December 31, 2025, giving the economy only a month and a half to recover from the government shutdown in the final quarter of 2025.
Not only did Americans face a 43-day government shutdown that impacted federal employees, military families, and families relying on SNAP benefits, but economists have long predicted an economic downturn due to tariffs. That has yet to appear. In the first quarter, real GDP fell -0.6% and rose only 1.4% in Q4. However, we have not had two consecutive quarters of negative growth. The strong third and fourth quarter, increasing 3.8% and 4.4% respectively, showed that Americans have yet to be truly affected by the tariffs that President Trump imposed in 2025.
While the overall increase was low, it was primarily due to decreased government spending. Despite an economic downturn in the fourth quarter, consumer spending and investment still showed strong numbers. They were not far below the third quarter level of 2.9%, increasing 2.4% in the fourth quarter. Although consumer spending decreased in the fourth quarter, it is near the level of the previous quarter. This is remarkable given that many government employees were furloughed, low-income families faced disruptions to government benefits, and many had to go without paychecks longer than they planned.
For the entire year of 2025 real GDP increased 2.2% from 2024. This is compared to an increase of 2.8% in 2024. Because there was such a decrease in government spending in 2025, the increase in GDP in 2025 was truly driven by personal consumption and domestic private investment. This shows the strength of the American economy to continue growing in consumption and investment without additional stimulus from the government. While government spending does play a strong role in the American economy, the strength this year came from individuals working hard to support themselves and save for themselves.
Bottom Line
Despite lower-than-ideal numbers in the last quarter of 2025, the American economy still showed its resilience. Hardworking Americans truly drove the growth in GDP in 2025, despite many feeling hardships.