US economic growth weaker than thought in fourth quarter with government shutdown, consumer pullback

WASHINGTON (AP) — U.S. economic growth slowed in the final three months of last year, dragged down by the six-week shutdown of the federal government and a pullback in consumer spending.

The nation's gross domestic product — the total output of goods and services — increased at a 1.4% annual rate in the fourth quarter, the Commerce Department reported Friday, down from 4.4% in the July-September quarter and 3.8% in the quarter before that.

The figures point to a more modest pace of growth in the coming quarters, as consumers take on more debt and cut back on saving to maintain their spending. Business investment, outside data centers and other equipment dedicated to artificial intelligence, grew at only a moderate pace.

Still, a measure of underlying growth that focuses on consumer and business spending was mostly resilient, economists said. The sharp slowdown in government outlays because of the shutdown shaved a full percentage point from growth.

Consumers and companies spent at a “reasonably solid" pace, said Martha Gimbel, executive director of the Budget Lab at Yale and former economist in the Biden White House. “This is not a disastrous report.”

Consumer spending rose 2.4%, a solid increase but notably below the third quarter’s healthy 3.5% gain. Federal government outlays plunged nearly 17% amid the shutdown. That decline should mostly reverse in the coming quarters, however, which may boost growth a bit.

The outsize growth last summer and fall partly reflected sharply lower imports. Companies ramped up imports in the first quarter of last year to get ahead of President Donald Trump's tariffs. After sharply boosting growth in the second and third quarters, trade had little impact at the end of last year.

Early Friday, before the figures were released, Trump attacked congressional Democrats for shutting down the government last fall. He also reiterated his criticism of Federal Reserve Chair Jerome Powell for not cutting interest rates more quickly.

“The Democrat Shutdown cost the U.S.A. at least two points in GDP,” Trump posted on his social media site. “That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES. “Two Late” Powell is the WORST!!!”

Yet a separate report Friday showed that inflation, according to the Fed's preferred measure, accelerated in December, as the cost of goods such as furniture, clothes, and groceries picked up.

Earlier this month, Trump predicted a blowout gain in GDP of more than 5% even if the government shutdown was factored into the figures. Trump has been trying to claim that the economy is at its strongest point in history, even though new government data shows that growth slowed, compared with 2024following his return to the White House.

The week data arrives before Trump delivers the State of the Union address on Tuesday, where he is expected to say that the economy is booming.

The report also underscores an odd aspect of the U.S. economy: It is growing steadily, but without creating many jobs. Growth was a fairly healthy 2.2% in 2025, yet a government report last week showed that employers added less than 200,000 jobs last year — the fewest since COVID struck in 2020.

Economists point to several possible reasons for the gap: The Trump administration’s crackdown on immigration has sharply slowed population growth, reducing the number of people available to take jobs. It’s one reason that the unemployment rate rose only slightly — to 4.3% from 4% — last year, even with the nearly non-existent hiring.

Some businesses may also be holding back on adding jobs out of uncertainty about whether artificial intelligence will enable them to produce more without finding new employees. And the cost of tariffs has reduced many companies’ profits, possibly leading them to cut back on hiring.

The economy is also unusual right now because growth is solid, inflation has slowed a bit, and unemployment is low, but surveys show that Americans are generally gloomy about the economy. In January, a measure of consumer confidence fell to its lowest level since 2014, yet consumers have kept spending, propelling growth.

Some of that spending may be disproportionately driven by upper-income consumers, in a phenomenon known as the “K-shaped” economy. Yet data from many large banks suggests lower-income consumers are still raising their spending, even if by not as much.

Associated Press Writer Josh Boak contributed to this story.

Shoppers shop at a grocery store in Schaumburg, Ill., Monday, Feb. 9, 2026. (AP Photo/Nam Y. Huh)

FILE - A person shops at a grocery store in Schaumburg, Ill., Monday, Feb. 9, 2026. (AP Photo/Nam Y. Huh, File)

WASHINGTON (AP) — The Supreme Court struck down President Donald Trump's far-reaching global tariffs on Friday, handing him a significant loss on an issue crucial to his economic agenda.

The 6-3 decision centers on tariffs imposed under an emergency powers law, including the sweeping “reciprocal” tariffs he levied on nearly every other country.

It's the first major piece of Trump's broad agenda to come squarely before the nation's highest court, which he helped shape with the appointments of three conservative jurists in his first term.

The majority found that the Constitution “very clearly” gives Congress the power to impose taxes, which include tariffs. “The Framers did not vest any part of the taxing power in the Executive Branch,” Chief Justice John Roberts wrote.

Justices Samuel Alito, Clarence Thomas and Brett Kavanaugh dissented.

“The tariffs at issue here may or may not be wise policy. But as a matter of text, history, and precedent, they are clearly lawful,” Kavanaugh wrote.

The majority did not address whether companies could get refunded for the billions they have collectively paid in tariffs. Many companies, including the big-box warehouse chain Costco, have already lined up to demand refunds in lower courts. Kavanaugh noted the process could be complicated.

“The Court says nothing today about whether, and if so how, the Government should go about returning the billions of dollars that it has collected from importers. But that process is likely to be a ‘mess,’ as was acknowledged at oral argument,” he wrote.

The Treasury had collected more than $133 billion from the import taxes the president has imposed under the emergency powers law as of December, federal data shows.

The tariffs decision doesn’t stop Trump from imposing duties under other laws. While those have more limitations on the speed and severity of Trump’s actions, top administration officials have said they expect to keep the tariff framework in place under other authorities.

The Supreme Court ruling comes despite a series of short-term wins on the court’s emergency docket that have allowed Trump to push ahead with extraordinary flexes of executive power on issues ranging from high-profile firings to major federal funding cuts.

The Republican president has been vocal about the case, calling it one of the most important in U.S. history and saying a ruling against him would be an economic body blow to the country. But legal opposition crossed the political spectrum, including libertarian and pro-business groups that are typically aligned with the GOP. Polling has found tariffs aren't broadly popular with the public, amid wider voter concern about affordability.

The Constitution gives Congress the power to levy tariffs. But the Trump administration argued that a 1977 law allowing the president to regulate importation during emergencies also allows him to set tariffs. Other presidents have used the law dozens of times, often to impose sanctions, but Trump was the first president to invoke it for import taxes.

Trump set what he called "reciprocal" tariffs on most countries in April 2025 to address trade deficits that he declared a national emergency. Those came after he imposed duties on Canada, China and Mexico, ostensibly to address a drug trafficking emergency.

A series of lawsuits followed, including a case from a dozen largely Democratic-leaning states and others from small businesses selling everything from plumbing supplies to educational toys to women’s cycling apparel.

The challengers argued the emergency powers law doesn’t even mention tariffs and Trump's use of it fails several legal tests, including one that doomed then-President Joe Biden's $500 billion student loan forgiveness program.

The economic impact of Trump's tariffs has been estimated at some $3 trillion over the next decade, according to the Congressional Budget Office.

Associated Press writer Mark Sherman contributed to this report.

Follow the AP's coverage of the U.S. Supreme Court at https://apnews.com/hub/us-supreme-court.

FILE - The Supreme Court is seen, Jan. 13, 2026, in Washington. (AP Photo/Julia Demaree Nikhinson, File)

FILE - The Supreme Court is photographed, Feb. 6, 2026, in Washington. (AP Photo/Rahmat Gul, File)