US economy slowed sharply in late 2025 amid government shutdown and lower spending

WASHINGTON – The U.S. economy grew at an annual rate of 1.4% in the final quarter of 2025, falling short of expectations as a prolonged government shutdown and cooling consumer spending took a toll.

The figures released by the Commerce Department on Friday were significantly lower than the 2% growth economists had forecast. The performance also marked a sharp deceleration from the 4.4% expansion recorded in the previous quarter.

A 43-day government shutdown was the primary driver of the slowdown, stripping approximately 1 percentage point from the quarterly growth rate. The publication of the data itself was delayed due to the funding lapse.

Consumer spending, which accounts for about two-thirds of U.S. economic activity, grew by 2.4% during the period. That marks a decline from the 2.9% growth seen in the third quarter.

Separate data released Friday showed the Personal Consumption Expenditures (PCE) price index remained at 2.9% in December. The reading, which is the Federal Reserve’s preferred inflation gauge, suggests that price pressures remain persistent.

Despite the sluggish end to the year, analysts expect a rebound in the first quarter of 2026, with growth potentially returning to a 3% pace.

While the headline 1.4% GDP growth figure missed expectations, a more granular analysis suggests the U.S. economy remains more resilient than the data implies. The primary detractor from growth was a "self-inflicted wound"—the impact of the prolonged government shutdown. Because this fiscal drag has since abated, the downturn is likely transitory. Investors and policymakers are now looking past the noise toward solid underlying fundamentals: a robust labor market and an anticipated recovery in household spending fueled by recent tax cuts.

Nevertheless, the report places the Federal Reserve in a complex policy bind. While slowing growth provides a potential argument for interest rate cuts to stimulate activity, the Personal Consumption Expenditures (PCE) price index remains sticky at 2.9%. With this preferred inflation gauge still well above the 2% target, any immediate pivot toward monetary easing appears premature. The central bank must now navigate a narrow path between curbing persistent inflation and shielding the broader economic expansion.

For export-led economies such as Vietnam, the cooling of U.S. consumer demand serves as a significant headwind. Even if temporary, the slowdown highlights how political volatility in Washington can dampen purchasing power in the world’s largest consumer market. Manufacturers in Vietnam’s critical textile, electronics, and furniture sectors will need to closely monitor U.S. demand elasticity as the year progresses.

The slowdown in U.S. consumer spending during the final quarter of 2025 has hit the Vietnamese-American business community head-on. As families scale back on non-essential expenses, services that serve as the backbone of our local economies—from the nail salon industry to neighborhood phở restaurants—are often the first to feel the pinch. Although economists are signaling a broader recovery, many small business owners in Little Saigons across the country are already grappling with the revenue losses seen at the end of last year. This economic pressure can have a compounding effect, potentially impacting a family's ability to maintain remittances or navigate the costly legal fees associated with F2B, H-1B, or EB-5 visa sponsorships. For now, entrepreneurs should stay prepared as consumer caution is expected to persist into the coming months.