It may not be recession, but economic growth got worse in year 1 of Trump 2.0

Before the markets opened on Friday, we got a surprisingly lousy report on economic growth for the end of 2025.

New data from the Bureau of Economic Analysis published on Friday showed the economy grew at an annualized rate of 1.4% in the final three months of 2025. Economists had expected GDP to grow at an annualized rate of 2.9% in the fourth quarter…..

In its release on Friday, the BEA said that "the deceleration in real GDP in the fourth quarter reflected downturns in government spending and exports and a deceleration in consumer spending that were partly offset by an acceleration in investment."

Underlying spending trends, however, remained solid, with real final sales to private domestic purchasers — the sum of consumer spending and gross private fixed investment — increasing 2.4% in the fourth quarter, compared with 2.9% in the third quarter.

Within that 2.4% rise in consumption, however, a sharp divide emerged in the quarter between goods and services, with services spending rising at a 3.4% rate and goods spending actually falling 0.1%.

The report also continued to show the impact the AI build-out is having on economic growth, with spending on information processing equipment contributing 0.65 percentage points to economic growth in the quarter. Among private fixed investment, which rose 2.6% during the quarter, spending on intellectual property products rose at the fastest rate, 7.4%.

That’s quite a bit different than what the Atlanta Fed was predicting ahead of the release of the GDP report, although the ATL Fed caught the downward trend as more data came in over the last month.

Then you look at the numbers underlying the Atlanta Fed’s models, and some of their stats match up. It’s the volatile “non-core” sectors where the differences show up.

President Trump is claiming that the government shutdown of October and November is the reason behind the decline in government spending. And certainly the main divergence between the ATL Fed’s 3.0% projection of GDP growth and the official report of 1.4% was a drop in Federal government spending, taking off 1.15% from Q4 growth. But then you look at the most recent Treasury Statement, and Federal government expenses didn’t seem to slow down in Q4 at all. So there may be some upward revisions to growth still to come.

I’d even argue that a bad GDP report isn’t necessarily bad for what TrumpWorld wants, since they and their tech oligarch funders are so strung out on debt that they need the lower interest rates that would come in reaction to a slower economy. But a different report on income and spending may have wrecked those plans, because it showed inflation was on the rise as 2025 ended.

Underlying U.S. inflation increased more than expected in December, and signs are pointing to a further acceleration in January, which would strengthen ‌expectations that the Federal Reserve would not cut interest rates before June.

The personal ‌consumption expenditures price index, excluding the volatile food and energy components, rose 0.4% after an unrevised 0.2% gain ​in November, the Commerce Department's Bureau of Economic Analysis said on Friday. Economists polled by Reuters had forecast the so-called core PCE price index climbing 0.3%. In the 12 months through December, core PCE inflation advanced 3.0% after increasing 2.8% in November….

The [overall] PCE price index increased 0.4% in ​December after rising 0.2% ​in November. [Overall] PCE inflation increased 2.9% year-on-year after gaining 2.8% in November.

The government also reported that consumer spending, which accounts for more than two-thirds of economic activity, rose ​0.4% in December after increasing ‌by the same margin in November. When adjusted for inflation, consumer spending gained ​0.1%, setting it on a slow growth trajectory heading into the first ​quarter.

That sure sounds like stagflation to me, and it shows that at the end of 2025, there was little difference in how the economy was doing vs the end of 2024 (when enough low-info voters put Donald Trump over the top in hopes of improving the economy). And in fact, the economy was likely slower than what we had in Joe Biden's last year.

Year-over-year Change

Real GDP
Q4 2024 +2.4%
Q4 2025 +2.2%

Real Personal Consumption Expenditures
Q4 2024 +3.4%
Q4 2025 +2.2%

PCE Price Index
Q4 2024 +2.6%
Q4 2025 +2.8%

Core PCE Price Index
Q4 2024 +3.0%
Q4 2025 +2.9%

Job Growth
Dec 2024 +1,459,000 (+0.9%)
Dec 2025 +181,000 (+0.1%)

In addition, there was a significant drop in personal saving by American consumers over the last half of 2025, as incomes stagnated while prices kept going up.

Seems like the end of 2025 indicates that we were in a slow-growth economy where businesses are taking growth in productivity for themselves, and not adding jobs or doing much to raise pay. And given that consumer sentiment stayed at depressed levels in February, don’t count on consumer spending to be that strong for Q1 2026 either.

And I sure wouldn’t expect SCOTUS striking down Trump’s tariffs to do anything for affordability or to lower inflation. The businesses that paid the tariffs aren’t getting their money back any time soon, and they sure as hell aren’t going to lower the prices that consumers have to pay. They’ll just pocket the profits and move on.