The US economy expanded by only 0.7% in the previous quarter, as the nation faces the prospect of a disruptive conflict with Iran.

Shoppers Prepare for Thanksgiving Amid Economic Uncertainty

Customers select groceries in anticipation of Thanksgiving at an Albertsons store in Redmond, Washington, photographed on November 24, 2025. (David Ryder/Reuters)

US Economic Growth Slows at Year’s End

The United States saw its economic expansion slow more than previously estimated in the final months of last year, just as President Donald Trump initiated military action against Iran.

According to the Commerce Department’s revised figures released Friday, gross domestic product grew at an annual rate of 0.7% from October to December. This is a significant drop from the initial 1.4% estimate and much lower than the 4.4% growth recorded in the third quarter.

Key Sectors See Downward Revisions

The updated report lowered growth estimates across several areas, including exports, consumer purchases, and government spending.

Economic Challenges and Consumer Resilience

The fourth quarter concluded a turbulent year for the US, marked by Trump’s efforts to reshape global trade and increased investment in artificial intelligence by businesses, even as hiring slowed. Despite these challenges, Americans continued to spend.

Impact of the Iran Conflict

The US is currently grappling with the economic fallout from Trump’s military campaign in Iran, which has led to surging oil prices and higher gas costs for consumers. If the conflict intensifies or persists, Americans may face further inflationary pressures, especially on everyday goods like groceries (more inflation pain expected).

Labor Market Weakness

The oil price spike coincides with a fragile job market. Employers cut 92,000 positions in February, causing the unemployment rate to rise from 4.3% to 4.4%.

Consumer Spending Trends

Another Commerce Department report released Friday indicated that Americans were cautious about spending at the start of the year, likely due to growing concerns over job stability.

Personal Consumption Expenditures data showed consumer spending remained steady, increasing 0.4% in January compared to December. This is significant, as consumer activity accounts for roughly two-thirds of the US economy.

Inflation Shows Slight Improvement

The Federal Reserve’s preferred inflation measure revealed modest progress in January. Year-over-year, inflation rose 2.8%, down from 2.9% in December. On a monthly basis, prices increased by 0.3%, compared to 0.4% the previous month.

This article will be updated as new information becomes available.

Reporting by Elisabeth Buchwald for CNN.