U.S. economic growth is expected to have slowed to a still-solid pace in the fourth quarter. Disruptions from last year's government shutdown and moderating consumer spending are cited as key factors. However, tax cuts and significant investment in artificial intelligence are projected to drive economic activity this year.

This anticipated slowdown follows back-to-back quarters of robust growth. The Commerce Department's advance estimate of fourth-quarter GDP, delayed by a record 43-day government shutdown, is set for release.

The report is anticipated to reveal a jobless economic expansion and a "K-shaped" economy. This indicates a divergence where upper-income households are thriving, while lower-income consumers face challenges from high inflation and stagnant wage growth, contributing to an affordability crisis.

Economists surveyed by Reuters predict GDP increased at a 3.0% annualized rate last quarter, down from a 4.4% pace in the July-September quarter. Data showing a widening trade deficit in December led the Atlanta Federal Reserve to lower its GDP estimate.

The nonpartisan Congressional Budget Office estimated the government shutdown would subtract 1.5 percentage points from fourth-quarter GDP. Most of this decline is expected to be recovered, though a portion may be permanently lost.

Economists forecast the U.S. economy grew 2.2% in 2025, a slight deceleration from 2.8% in 2024. Job growth last year was the lowest outside the pandemic since the 2009 Great Recession.

Growth in consumer spending likely slowed from the third quarter's brisk 3.5% pace. Higher-income households have largely driven spending, often at the expense of savings, as inflation eroded purchasing power. Real disposable income showed little growth.

Larger tax refunds anticipated this year due to tax cuts could provide a tailwind to consumer spending. Business investment, particularly related to AI, is expected to remain solid. The surge in imports in December was partly due to capital goods for data center construction, supporting AI infrastructure.

AI, including data centers and semiconductors, is estimated to have accounted for a third of GDP growth in the first three quarters of 2025, mitigating the impact of tariffs and reduced immigration. Trade is expected to have made minimal contribution to GDP in the fourth quarter.

Residential investment is forecast to have contracted for the fourth consecutive quarter due to higher borrowing costs impacting builders and homebuyers.

Inflation data, specifically Core PCE inflation excluding volatile food and energy components, is also a key focus. Economists forecast it rising 0.3% for December, with a year-on-year increase of 2.9%. Federal Reserve officials are closely monitoring these figures as they aim for a 2% inflation target.