Consumer spending, including holiday spending, helped keep the U.S. economy growing during the final months of 2025.
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Jeremy Weine/Getty Images
The U.S. economy slowed in the final months of last year, but it continued to expand, thanks to robust consumer spending and business investment in artificial intelligence.
A report from the Commerce Department on Friday shows the economy grew at an annual rate of 1.4% in October, November and December. That compares to a 4.4% pace the previous quarter.
For all of 2025, the nation’s gross domestic product grew 2.2%, following 2.4% growth in 2024. (Both measures compare the size of the economy at year’s end to where it was 12 months earlier.)
Consumer spending is the biggest driver of the U.S. economy, and that trend continued in the final months of last year. Personal spending rose at an annual rate of 2.4% in the fourth quarter.
“The consumer drives the economic train,” says Mark Zandi, chief economist at Moody’s Analytics.
Spending was propped up in part by wealthy Americans who have been been cheered by the rising value of their homes and stock portfolios.
“The well-to-do, they’re doing great and they’re out spending,” Zandi says. “Folks in the bottom and middle of the income distribution, not so much.”
Businesses that cater to lower-income shoppers have noted their increased caution. But overall spending has held up well, even if some families have to drain their savings or borrow money to keep up.
The credit rating agency TransUnion says credit card balances expanded in the fourth quarter to $1.15 trillion, $39 billion more than the previous year.
But the labor market is stalling
The growth in spending and GDP comes despite a sharp slowdown in hiring last year. U.S. employers added just 181,000 jobs in 2025, compared to more than 1.4 million new jobs the year before.
“That just can’t hold,” Zandi says. “If that continues, I think we’ll start to see unemployment tick higher, consumers become more cautious, and the economy will struggle. So hopefully we start to see some job growth here in the not too distant future.”
Hiring did pick up in January, with 130,000 jobs added, although most of those jobs were in health care — an industry that tends to add workers in good times and bad.
The AI boom is helping boost the economy
GDP was also boosted in the fourth quarter by business investment, especially in artificial intelligence. Tech companies have been spending huge sums on data centers and other facilities to power the AI boom.
“That’s a bright, shining star that should continue to shine brightly in 2026,” Zandi says.
There are also some indications that investment could spread to other sectors in the coming year.
“While the A.I. investment boom is expected to continue, recent data suggests early signs of a broader pickup,” Wells Fargo economists Tim Quinlan and Shannon Grein wrote in a research note. “This is occurring amid supportive tax incentives and a growing willingness by firms to finance investment beyond A.I.”
The GOP tax bill passed last summer is designed to encourage business investment by giving companies an immediate tax deduction for that spending, rather than spreading it over a number of years.
Other economic factors at play
GDP figures seesawed from quarter to quarter last year as a result of big swings in international trade. The D in GDP stands for “domestic,” so imports from other countries are subtracted from the total. Imports soared early in 2025, as businesses raced to stockpile goods before President Trump’s tariffs took effect. That made GDP look weaker in the early months of the year. Once the tariffs were in place, imports dropped, making economic growth look stronger.
For all of 2025, the U.S. ran a trade deficit that was little changed from the year before.
Government spending declined in the final months of the year, due in part to the six-week federal shutdown. That subtracted from fourth-quarter growth, although much of that will be made up in the early months of 2026.
Lackluster residential investment was a drag on the economy throughout last year.
“One dark spot in the economy that continues to be a problem in 2026 will be housing,” Zandi says. “Affordability is a real issue there. People just can’t afford to buy homes at these house prices and mortgage rates.”
Mortgage rates have fallen to just over 6% from nearly 7% a year ago. But sales of existing homes and construction of new houses remain sluggish.
