The Economy Grew at 0.7% Last Quarter and It’s Worse

The Commerce Department came out Friday with the kind of revision nobody wanted to see, slashing its estimate of fourth-quarter GDP growth down to a 0.7% annual rate. That’s not a typo. The first estimate had already been underwhelming, and now we’re looking at an economy that basically spent the last three months of the year crawling on its hands and knees while Washington played chicken with a government shutdown that dragged on for 43 days.

Let’s be clear about what 0.7% means in practical terms. It means the largest economy on the planet, one that was supposedly riding a wave of tax-cut-fueled momentum not that long ago, grew at roughly a third of what most economists consider healthy. Back in the second quarter we were posting numbers above 3%. That feels like a different country now.

The shutdown is the obvious culprit and the easy one to point to. Eight hundred thousand federal workers went without paychecks. Contractors got stiffed. Government agencies that process permits and loans and approvals just stopped doing those things. But blaming the shutdown alone gives Washington too convenient an excuse, because the underlying numbers tell a messier story. Consumer spending, which drives roughly two-thirds of economic activity, slowed down. Business investment pulled back. Trade was a drag. These are not problems caused by a few weeks of closed national parks and furloughed IRS agents. These are structural cracks that were already there, and the shutdown just made them impossible to ignore.

The thing nobody in either party wants to admit is that we’ve been papering over weakness for a while now. The stock market had a brutal December, with the S&P 500 dropping nearly 10% in the final month alone. Consumer confidence was shaky heading into the holidays. And the global picture wasn’t helping either, with China slowing down, Europe flirting with recession, and Brexit uncertainty making international markets jittery enough to spook American exporters. When you stack all of that on top of a self-inflicted wound like the shutdown, 0.7% starts to feel less like a stumble and more like a warning.

What frustrates me is the spin that’s already started. You’ll hear people say this is a one-time blip, that Q1 numbers will bounce back once the shutdown effects wash out. And maybe they will. Probably, even. But a bounce from 0.7% to, say, 2.2% is not a victory lap. It’s recovery from a fever you gave yourself. The bigger question is whether the economy can sustain anything close to the 3% growth that was promised when the 2017 tax cuts were sold to the American public as rocket fuel. We’re now more than a year past that legislation and the rocket is looking more like a bottle rocket that already popped.

Real people feel this in ways GDP doesn’t capture cleanly. Small business owners who couldn’t get SBA loans processed during the shutdown lost deals that aren’t coming back. Federal workers who missed two paychecks burned through savings and ran up credit card debt at interest rates north of 17%. Restaurants near government buildings in D.C. and across the country saw revenue crater and some of them just never recovered the lost foot traffic. A GDP number is an abstraction. But the 0.7% is made up of thousands of small disasters that happened to specific people in specific places, and telling them the next quarter will be better doesn’t fix the damage.

There’s a real possibility that we look back at this stretch and see it as the moment the post-tax-cut sugar high finally wore off. Not a recession, not a crisis, but something arguably more insidious. A slow fade. The kind of economic drift where nothing is technically terrible but nothing is good enough to build on either. Where wages stay flat enough that people feel stuck, where businesses hold off on hiring because they can’t predict what Washington will do next, where the numbers are just mediocre enough that nobody sounds the alarm but everyone feels the squeeze.

Growth of 0.7% is the economy telling you something. Whether anyone in a position to do something about it is actually listening is a different question entirely.

Sources: Bureau of Economic Analysis. GDP Second Estimate, Q4 2025. CNBC. Fourth-quarter GDP revised down to just 0.7% growth.