Q4 2025 U.S. GDP Growth Rate Drops Unexpectedly

It’s Friday the 13th and ahead of the Ides of March this weekend. Not sure this is apropos of anything, but this morning brings us a heap of economic data. We can decide for ourselves whether we need to beware of anything. Pre-market futures are up following the release of this data, bringing in a spring green a week ahead of the season’s change.

Q4 GDP Cuts in Half on 2nd Print

The second draw for Q4 Gross Domestic Product (GDP) came in at its lowest level since Q1 of this year: +0.7%, which is exactly half of where we saw the first print. This brings the average GDP for 2025 down to +2.1% from +2.4% in 2024, even with a robust +4.4% Q3 of last year.

Why the big change? At first glance, we might say the government shutdown has now been priced into the Q4 numbers. Consumption came in at +2.0%, down 40 basis points (bps) from our last look. Meanwhile the Price Index jumped to +3.8%, 20 bps higher than expected (and well off the +2.0% inflation rate the Jerome Powell Fed believes is optimal), while core PCE was in-line with expectations at +2.7%.

PCE Numbers Unsurprising for January

This delayed report on Personal Consumption Expenditures (PCE) - the Powell-led Fed’s preferred gauge on inflation - for January came in mostly in-line with expectations. Headline was +0.3%, down 10 bps month over month, and +2.8% year over year, 10 bps lower than expected and the +2.9% in the previous month.

Core PCE was +0.4% for the second-straight month, in-line with expectations, while year over year we bumped up 10 bps to +3.1%, the highest print we’ve seen since March of 2024. We had spent much of 2025 at +2.8% or lower; while this is still higher than the Fed would like, it still appeared to have been contained. But today’s report is the second in a row with a 3-handle.

Personal Income and Spending for January both came in at +0.4% this morning, down 10 bps on the former and up 10 bps on spending. Real Spending, accounting for inflation, came in at +0.1% today. These are all fine numbers, as far as our inflationary economy has gone, but again we will stress that these are backward-looking figures - the real test will be how everything holds up once we price-in the war in Iran.

Durable Goods Orders Light for January

Another delayed report this morning is Durable Goods Orders, also for January. These came in flat, 0.0%, up from the improved revision of -0.9% the prior month. Analysts had been expecting something closer to +1.3%. Subtracting Transportation costs, these reached +0.4% - also lower than the +0.9% expected, and follows an upwardly revised +1.3% for December. 

Non-defense, ex-aircraft (a proxy for “normal” business spending) was also flat, down from +0.5% anticipated and following an upwardly revised +0.8% from the previous month. Shipments also disappointed: -0.1% from expectations of +0.4%, which equals the near-term low we’d seen back in August of last year.

What to Expect from Today’s Stock Market

Of course, developments in Iran remain front of mind, particularly the region called the Strait of Hormuz, which transports 20% of the global oil supply. Elsewhere, the new JOLTS data is expected to tick up to 6.7 million job openings for January, and preliminary Consumer Sentiment for March is projected to cool slightly to 55.3 from 56.6 last month.

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