The U.S. economy showed signs of slowing growth during the last quarter of 2025, yet it avoided contraction, largely driven by strong consumer spending and strategic business investments. A report from the Commerce Department released on Friday revealed that the economy expanded at an annual rate of 1.4% during October, November, and December. This marked a significant decline from the previous quarter’s growth rate of 4.4%. For the entire year of 2025, the gross domestic product (GDP) grew by 2.2%, slightly down from the 2.4% growth seen in 2024.
### Consumer Spending Remains Robust
Consumer expenditure, a vital component of the U.S. economy, continued to be the driving force in the latter part of the year. Personal spending increased at an annual rate of 2.4% in the fourth quarter. Mark Zandi, chief economist at Moody’s Analytics, emphasized the pivotal role consumers play in economic activity, stating, “The consumer drives the economic train.” Wealthier individuals, buoyed by the rising value of their homes and investments, contributed to this upward trend, while lower and middle-income households exercised increased caution in their spending.
Despite some families resorting to savings depletion or borrowing to maintain their spending levels, overall consumer activity has remained steady. Data from TransUnion indicated a noteworthy rise in credit card balances, which reached $1.15 trillion in the fourth quarter, marking an increase of $39 billion from the previous year.
### Decline in Job Growth Poses Risks
Despite the positive consumer spending figures, the U.S. labor market appears to be stalling. Employers created just 181,000 new jobs in 2025—a steep decline compared to over 1.4 million jobs added the previous year. Zandi cautioned that this trend cannot be sustained, warning that continued stagnation may lead to increased unemployment and further consumer caution.
However, there was a glimmer of hope as January 2026 recorded a hiring uptick, adding 130,000 jobs, predominantly in health care—a sector known for resilience in various economic conditions.
The report also highlighted a surge in business investment, particularly in artificial intelligence (AI). Many tech companies have been directing substantial funds towards infrastructure development to capitalize on the AI boom. Zandi referred to this sector as a “bright, shining star,” suggesting it will continue to drive economic growth in 2026.
Economists from Wells Fargo noted the potential for broader investment growth beyond AI, aided by tax incentives from the recently passed GOP tax bill, which allows companies immediate tax deductions for investments.
### Economic Variability Driven by Trade and Housing Issues
The consistency of GDP figures fluctuated throughout the last year, largely influenced by international trade dynamics. The way GDP is calculated means that imports reduce the overall figure; thus, a spike in imports earlier in 2025 due to businesses stockpiling goods before enforced tariffs made growth appear weaker. This pattern reversed once the tariffs took effect, contributing to a stronger economic rapport later in the year.
The U.S. maintained a relatively stable trade deficit in 2025 compared to the previous year. However, government spending took a downturn in the last quarter, in part due to a six-week federal shutdown, which detracted from growth figures that quarter.
Another persistent issue remains within the residential real estate market, which has struggled throughout the past year. Zandi described housing affordability as a “real issue,” noting that high mortgage rates and home prices continue to deter potential buyers. Although mortgage rates have recently dropped from nearly 7% to just above 6%, sales remain sluggish.
As the economy moves into 2026, the challenges of job growth, business investment sustainability, and housing affordability will warrant close monitoring to assess their impact on future economic stability.
Source reference: Full report
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