Economic growth slowed while price increases accelerated in last 3 months of 2025
San José, CA – On Friday, February 20, the first estimate of Gross Domestic Product, or GDP, for the last three months of 2025 was released by the Bureau of Economic Analysis. This was much less than the forecast by economists of 2.5% and even more the rate of GDP growth for the July to September period, which was 4.4%.
This meant the rate of economic growth for the entire year of 2025 was only 2.2%, as compared to 2.8% for all of 2024. Thus, despite Trump’s claim of “the best economy ever,” Trump’s trade war with the world and his efforts at mass deportations only served to slow the economy.
The biggest drag on economic growth in the fourth quarter of October to December was a drop in spending on goods and services by the federal government. This is due to the impact of DOGE employment cuts hitting in October, and the non-payment of government contracts and their workers during the shutdown (federal workers do get paid when a shutdown ends).
At the same time, the Personal Consumption Expenditures price index, or PCE, on a year over year basis accelerated slightly from 2.8% in the September to October period to 2.9% in the last three months of the year. Taking out food and energy, whose prices rise and fall more than other goods and services, the so-called “core” PCE rose 3% in the October to December period, up from 2.8% in the previous three months.
Trump has said that the war on rising prices is done, and declared victory on the affordability front, despite the reality of consumer prices rising at a faster rate. But the Federal Reserve Bank, which uses the PCE as the measure of inflation, will be looking at the data, making it less likely to lower interest rates in the near future.