US growth falls sharply to 1.4% rate in fourth quarter

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The US economy grew at an annualised rate of just 1.4 per cent in the fourth quarter, far below Wall Street expectations, as the record federal shutdown hit government spending.

GDP growth in the final quarter of the year was sharply down from 4.4 per cent in the previous period and fell well short of expectations of 2.8 per cent in a Bloomberg poll of economists.

Fourth-quarter growth was held back by a drop in government spending during the shutdown and a slowdown in consumer spending, the Bureau of Economic Analysis said. That was offset slightly by an uptick in business investment.

Price rises accelerated slightly, with the personal consumption expenditures index — the Federal Reserve’s preferred measure of inflation — increasing by 2.9 per cent in December, compared to 2.8 per cent previously. The Fed’s target is 2 per cent.

Forecasts had swung wildly in the run-up to Friday’s data release as economists attempted to interpret a slew of varying indicators of the health of the US economy, many of which were delayed by a record government shutdown.

As recently as last month, analysts had expected bumper fourth-quarter growth, driven by robust spending by richer consumers and AI-fuelled business investment. The Atlanta Fed had predicted a GDP growth rate as high as 5.4 per cent.

But expectations had since cooled as more data became available and pointed to decreasing momentum. Figures released on Thursday showed the US trade deficit jumped in December, knocking GDP growth.

Donald Trump sought to pin the growth slowdown on Democrats and the Fed, which he has criticised for not lowering interest rates more quickly. 

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

Market moves were muted in response to the data. The dollar index ticked up while Treasury yields were roughly flat on the day.

Futures tracking the S&P 500 index were down 0.3 per cent.

This is a developing story