Trump’s approval rating is low, but as the midterm elections approach, he will receive a huge military budget.
Low inflation and unemployment are both good news for the economy, but voters aren’t feeling it. That could be a blow to Republicans in the midterm elections.
WASHINGTON, Feb 20 (Reuters) – U.S. economic growth slowed more than expected in the fourth quarter after disruption from last year’s government shutdown and subdued consumer spending, but tax cuts and investment in artificial intelligence were expected to support economic activity this year.
The Commerce Department’s Bureau of Economic Analysis released preliminary estimates of fourth-quarter GDP on Friday, saying gross domestic product grew at an annualized rate of 1.4% last quarter. Economists polled by Reuters had forecast that GDP would grow at a pace of 3.0%. But the survey was completed before Thursday’s data showing the trade deficit widened in December to a five-month high.
The economic growth rate in the third quarter was 4.4%. The nonpartisan Congressional Budget Office estimated that the government shutdown would subtract 1.5 percentage points from GDP in the fourth quarter due to reduced services provided by federal employees, reduced federal spending on goods and services, and temporary reductions in Supplemental Nutrition Assistance Program benefits.
CBO predicted that most of the lost production would eventually be recovered, but between $7 billion and $14 billion would not.
Ahead of the report’s release, President Donald Trump posted on social media: “The shutdown cost America at least 2 points of GDP. That’s why they’re planning again in mini form. No shutdown! And lower interest rates.”
The report, delayed by a record 43-day government shutdown, highlighted a “K-shaped” economy in which higher-income households are doing well while lower-income consumers are struggling amid jobless expansion, high inflation due to import tariffs and stagnant wage growth.
This situation is creating what economists and President Trump’s opponents call an “affordability crisis.” Just 181,000 jobs were added last year, the fewest outside of the pandemic since the Great Recession of 2009, and down from 1,459,000 in 2024.
Growth in consumer spending slowed from a strong 3.5% pace in the third quarter. Economists say spending is largely driven by high-income households, whose purchasing power is eroded by inflation and at the expense of savings.
Economists expect the tax cuts to expand tax refunds this year, which could provide a tailwind to consumer spending. Economists estimate that AI, including data centers, semiconductors, software and research and development, will account for a third of GDP growth in the first three quarters of 2025, cushioning the blow from tariffs and lower immigration. This old report probably won’t affect monetary policy.
