Disappointment for Trump, Resilience for Everyone Else: The Truth About US GDP

Date: 20 February 2026

Overview

The article discusses the significant slowdown in US economic growth during the fourth quarter of 2025, where GDP growth plummeted from a robust 4.4% to a mere 1.4%. This decline, which was much lower than market expectations, raises concerns about potential stagflation. However, a deeper analysis of the Bureau of Economic Analysis (BEA) report suggests that the underlying economic fundamentals may be stronger than the headline figures indicate.

Key Factors Behind GDP Decline

The primary cause of the GDP drop was attributed to the longest government shutdown in US history, which halted federal agency operations and spending. Federal spending decreased by 1.15%, marking the worst performance since the 1970s. Additionally, net exports, which had been a significant contributor to GDP growth in previous quarters, stalled, with exports declining by 0.1% in Q4. This raises questions about the effectiveness of former President Trump's protectionist trade policies.

Consumer Resilience

Despite the negative economic indicators, consumer spending increased by 1.6%, indicating that the consumer sector remains a vital driver of the economy. Investment growth also accelerated, particularly in data processing infrastructure, suggesting ongoing adoption of artificial intelligence (AI) technologies, which are expected to enhance long-term productivity and help control inflation.

Inflation Concerns

The article highlights the Federal Reserve's preferred inflation metric, the Core Personal Consumption Expenditures (PCE) index, which rose from 2.8% to 3%. This increase in inflation is seen as a potential challenge for the Fed, which may need to adopt a more hawkish stance in response to rising price pressures. The market has slightly adjusted its expectations for US interest rate cuts, with the first cut anticipated in July 2026.

Sticky Inflation and Consumer Behavior

The "sticky" nature of inflation is evident in the PCE report, where significant price increases were noted in non-discretionary sectors such as healthcare and housing. This suggests that consumers are feeling the pinch of rising living costs, leading to reduced discretionary spending.

Conclusion

The overall data indicates that the US private sector and consumers are demonstrating resilience despite political challenges and the impact of the government shutdown. The stagnation in net exports highlights the limitations of protectionist policies, as global supply chains cannot be rapidly restructured. While import values continue to rise, it reflects that consumers are still purchasing goods, albeit at higher prices.

Author: Aleksander Jablonski, Quant Analyst