Core Data at a Glance

  • The U.S. economy grew at an annualized rate of 1.4% in the fourth quarter, below market expectations. The Bureau of Economic Analysis said on Friday that the federal government shutdown and weak exports were the main drags.
  • Growth slowed sharply from the 4.4% annualized rate in the third quarter, with full-year expansion at 2.2%. The federal services disruption from October 1 to November 12 shaved about 1 percentage point off fourth-quarter GDP growth.
  • B. Riley Wealth Chief Market Strategist Art Hogan said in a statement that the slowdown "reflects accumulated high interest rates and temporary government disruptions that finally cooled the extraordinary momentum of previous quarters. Looking at the GDP components, business investment was solid, consumption was positive but slower than in the third quarter, and government spending fell notably."

Deep Dive: Export and Trade Policy Disruptions

Beyond the government shutdown, declining exports also weighed on the economy last quarter. Despite the dollar depreciating last year, overseas shipments fell, as the broadest U.S. trade policy overhaul in decades disrupted business relationships with major trading partners.

On Friday, the U.S. trade outlook became even more uncertain. The Supreme Court ruled 6-3 that most of President Donald Trump's tariffs were illegal, finding that they overstepped Congress's constitutional power to set taxes. The Court did not rule on whether the U.S. must refund import duties already paid by businesses.

Following the ruling, Trump said he would impose a 10% tariff globally under another law to replace the measures struck down by the Court.

Market Reaction and Impact on Small and Medium-Sized Enterprises

After the Supreme Court ruling, major U.S. stock indices rose. Analysts believe that lower tariffs are especially beneficial to small and medium-sized enterprises. Mark Valentino, head of commercial banking at Citizens Bank, said in a statement: "This Supreme Court ruling could ease cost pressures for small and medium-sized businesses that have absorbed higher import costs over the past year. For many business owners, tariffs have directly affected pricing, inventory decisions, and cash flow, so any tariff reduction—or potential refunds—would be welcome."

Consumption and Inflation Outlook

Consumer spending supported economic expansion last quarter, but growth slowed to 2.4% from 3.5% in the third quarter. The University of Michigan index shows consumer confidence has ticked up in recent months, but remains about 13% lower than a year ago and 21% lower than in January 2025. Inflation remains one of consumers' top concerns.

Joanne Hsu, director of the University of Michigan's Surveys of Consumers, said in a statement on Friday: "About 46% of consumers spontaneously mentioned that high prices are eroding their personal finances," noting that "this share has exceeded 40% for seven consecutive months."

A report released on Friday showed an uptick in the Federal Reserve's preferred inflation gauge, which could heighten household concerns about price pressures. Bureau of Economic Analysis data showed the Personal Consumption Expenditures (PCE) price index excluding food and energy costs rose 3% year-over-year in December, up from 2.8% in November. Fed policymakers have repeatedly pledged to bring inflation down to the 2% long-term target.