The U.S. economy ended 2025 barely moving while Americans opened their wallets anyway — and Thursday’s data dump exposed just how wide that gap has become.

Real gross domestic product — the broadest measure of economic output — grew at an annualized rate of just 0.5% in the fourth quarter of 2025, according to the Bureau of Economic Analysis’s third and final estimate released Thursday.

That’s a sharp deceleration from the 4.4% pace recorded in the third quarter and a downward revision of 0.2 percentage points from the prior estimate, primarily due to weaker investment data.

The GDP figure carries an asterisk: the October–November 2025 government shutdown — which the BEA estimates subtracted roughly 1.0 percentage point from growth on its own — significantly distorted the quarter.

Strip that out and the picture looks less dire. But the underlying trend is still a marked step-down from the prior quarter’s momentum.

Fed’s Preferred Inflation Gauge Was Already 1% Above Target, Before the Crude Shock

The personal consumption expenditures (PCE) price index — the Federal Reserve’s preferred inflation gauge — rose 2.8% year over year in February, unchanged from January.

Core PCE, which excludes food and energy, came in at 3.0% annually, edging down from 3.1% and hitting consensus.

On a monthly basis, core PCE rose 0.4%, matching expectations. Critically, this is all pre-war data.

February’s figures were locked in before the Iran conflict sent crude oil above $100 a barrel and triggered a sharp repricing of inflation expectations across markets.

The Fed’s preferred gauge was already running 1 percentage point above the 2% target — before the energy shock landed.

Thursday’s PCE print is therefore less a verdict on where inflation stands today than a baseline from which to measure the damage.

The more current read arrives Friday, when the Bureau of Labor Statistics releases the Consumer Price Index for March.

Consensus expects headline CPI to surge to 3.3% year over year — up sharply from February’s 2.4% — with core CPI seen at 2.7%, versus 2.5% prior.

On a monthly basis, headline inflation is forecast to jump 0.9%, one of the largest single-month moves in years.

A Fragile Consumer Heading Into an Oil Shock

February’s personal income and outlays data revealed the tension at the heart of the U.S. consumer picture.

Personal income fell 0.1% on the month — below the 0.3% consensus and a sharp reversal from January’s 0.4% gain. The drop was led by declines in personal dividend income and transfer receipts.

Yet spending surged 0.5%, exactly in line with estimates.

Consumers spent more while earning less — drawing down savings. The personal saving rate fell to 4.0%.

Speaking on Bloomberg TV after the release, Nela Richardson, chief economist at ADP said: “It’s hard to pull a current signal from the data that we’ve seen, but it’s meaningful that fourth quarter GDP growth was lower than we thought, and this is before the ramp-up in oil prices.”

Richardson’s framing lands with precision. A consumer who was already “vulnerable and fragile” in the fourth quarter — before the recent spike in energy costs driven by Middle East tensions — faces a compounding pressure test going forward.

Higher fuel costs act as a stealth tax, shrinking the purchasing power that spending data currently shows holding up.

The labor market adds another layer of complexity. Initial jobless claims for the week ending April 4 came in at 219,000 — above both the prior week’s 203,000 and the 210,000 consensus — suggesting some softening at the margin.

Yet Richardson noted four consecutive weeks of strengthening private sector hiring in ADP data, averaging roughly 26,000 new jobs per week since the March reference period.

The headline obscures deep fragmentation. Hiring strength is concentrated in healthcare and services. Workers in other sectors describe a very different reality.

“The hiring is so concentrated in healthcare. If you’re in a different industry, you are not seeing what the national numbers are seeing,” Richardson said.

Richardson’s survey data sharpens the anxiety: only 28% of U.S. workers said their jobs are safe from elimination. The most vulnerable are at both ends of the age spectrum — recent graduates entering a labor market reshaped by AI adoption, and older workers questioning their relevance in the final stretch of their careers.

Market Reactions

U.S. markets were little moved by Thursday’s backward looking data.

Futures on the S&P 500 – as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) – edged 0.1% lower, alongside a 0.1% decline in Nasdaq 100 futures and a 0.2% slip in Dow Jones contracts.

On Wednesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) closed 2.6% higher, notching its sixth straight session in the green after President Donald Trump announced a two-week ceasefire with Iran.

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