Q4 GDP in America already had a surprisingly small 1.4% figure reported last month when some projections had about double that level growth. But a new report on Friday said
it was even weaker than that. U.S. economic growth slowed more sharply than initially thought in the fourth quarter amid downward revisions to consumer spending and business investment, government data showed on Friday.
Gross domestic product increased at a 0.7% annualized rate last quarter, revised down from the initially reported 1.4% pace, the Commerce Department's Bureau of Economic Analysis said in its second GDP estimate. Economists polled by Reuters had forecast GDP growth would be unrevised at 1.4%.
That's a pretty big revision, so
let's look at the report and see why it's even smaller now.
• The downward revision to exports reflected a downward revision to services (led by charges for the use of intellectual property), reflecting updated data from BEA’s International Transactions Accounts.
• The downward revision to consumer spending reflected a downward revision to services that was partly offset by an upward revision to goods. Within services, the largest contributor to the downward revision was health care (both hospital and nursing home services as well as outpatient services), based on new fourth-quarter data from the U.S. Census Bureau Quarterly Services Survey (QSS). Within goods, the upward revisions were widespread, based on revised U.S. Census Bureau Monthly Retail Trade Survey data for November and December.
• Within government, the revision primarily reflected a downward revision to state and local government structures investment, based on revised October and new November and December U.S. Census Bureau Value of Construction Put in Place (VPIP) data.
• Within investment, the revision reflected downward revisions to structures and intellectual property products. The revision to structures was led by manufacturing structures, based on revised October and new November and December U.S. Census Bureau VPIP data. The revision to intellectual property products primarily reflected a downward revision to software, based on new U.S Census Bureau QSS data.
So weaker numbers in several areas as more of the delayed data from Census Bureau reports has come in. Well, outside of spending on goods (which also isn't as impressive, as you'll see).
It also shows that "core" GDP was quite a bit lower than originally reported, as the volatile factors of trade, government spending, and inventory levels weren't the entire reason for that downward revision. Which means that the original reporting of core GDP being 2.0% in Q4 is now a little less than 1.7%.
That downward revision for Q4 also reduced 2025's annual rate of economic growth to 2.1%, the lowest in 3 years and significantly down from 2023's 2.9%, and 2024 2.8%. Along with much higher job growth, that's the "disaster" that Joe Biden left for Trump.
One positive in the GDP report is that the recently released Quarterly Census of Employment and Wages (QCEW) showed that wage growth was generally higher than first reported for July, August and September. That led to upward revisions for income in both the GDP report, and in
the income and spending report for January, which also came out last Friday.
But in both the GDP and income/spending reports, the upward revisions in incomes did not also have an upward revision in consumer spending, which has barely grown above the rate of inflation in recent months.
The $81.1 billion increase in current-dollar [Personal Consumption Expenditures] in January reflected an increase of $105.7 billion in spending on services that was partly offset by a decrease of $24.6 billion in spending on goods.
Real PCE increased $17.0 billion (0.1 percent at a monthly rate) in January.
That follows a Q4 increase in real PCEs of 2.0% on an annualized rate, or less than 0.2% a month. Part of that is consumers not feeling as free to spend on things, but another part is due to the fact that prices kept going higher as 2025 ended and 2026 began.
From the preceding month, the PCE price index for January increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.4 percent.
From the same month one year ago, the PCE price index for January increased 2.8 percent. Excluding food and energy, the PCE price index increased 3.1 percent from one year ago.
Which means prices as measured by the PCE index (which we are told is what the Federal Reserve looks at the most when judging what inflation is) have increased more in the first 12 months of Trump 2.0 than they did under the last year of Joe Biden's presidency (a time when prices were allegedly rising at an unacceptable amount).
And this is back in January, before the average US gas price went up 75 cents a gallon over the last 2 weeks. So year-over-year inflation is likely to go higher than 3% for at least the next few months, while wage growth has gone back down from the Q3 peak to below the levels we were at for the start of 2025.
These reports confirm that we were already in a slowdown for growth at the end of 2025 and the start of 2026. And that's before we foolishly started to bomb Iran without any plan for what might come after we decided to do so. Both militarily, and economically.
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