U.S. economic growth slowed in the fourth quarter, the government confirmed on Thursday, and the loss of momentum appears to have persisted early this quarter amid cold temperatures and concerns that tariffs will hurt spending through higher prices.
Gross domestic product increased at a 2.3% annualized rate last quarter after accelerating at a 3.1% pace in the July-September quarter, the Commerce Department's Bureau of Economic Analysis (BEA) said in its second GDP estimate for the fourth quarter on Thursday.
Economists polled by Reuters had expected that GDP growth would be unrevised. GDP growth was revised up by less than 0.1 percentage point, which after rounding matched the 2.3% rate that was estimated last month.
Upgrades to government spending and exports were partly offset by downward revisions to consumer spending and investment. Nonetheless, consumer spending, which accounts for more than two-thirds of the economy, grew at a 4.2% rate last quarter after rounding, matching the previously estimated pace.
The economy grew 2.8% in 2024 after expanding 2.9% in 2023.
It is expanding well above the 1.8% rate that Federal Reserve policymakers view as the non-inflationary growth pace.
There are, however, signs that growth cooled further early in the first quarter.
Snowstorms and unseasonably cold temperatures that blanketed many parts of the country in January weighed on retail sales and the housing market and also have restrained job growth.
Tariffs on imports, already imposed or planned by President Donald Trump in his first month in office, have eroded consumer and business confidence. Fears are mounting that tariffs, which are a tax, will increase prices of goods and constrain the Federal Reserve's ability to continue cutting interest rates.
Efforts by the Trump administration to slash spending and shrink the government, which have resulted in unprecedented layoffs of federal workers are also seen posing a risk to spending, the main engine of the economy. Federal contractors have also been affected by the spending cuts.
A measure of domestic demand, final sales to private domestic purchasers - excluding inventories, trade and government - increased at a 3.0% rate. Private final sales were previously estimated to have grown at a 3.2% pace.
The personal consumption expenditures price index, excluding food and energy, rose at an upwardly revised 2.7% pace. The so-called core PCE inflation was previously reported to have increased at a 2.5% rate.
The core PCE price index is one of the inflation measures tracked by the U.S. central bank for its 2% target.
The Fed paused cutting interest rates in January having reduced its benchmark overnight interest rate by 100 basis points to the 4.25%-4.50% range since September, when it started easing monetary policy. It hiked the policy rate by 5.25% percentage points in 2022 and 2023.
Minutes of the central bank's January 28-29 policy meeting published last week showed policymakers worried about higher inflation from Trump's initial policy proposals.
