The US economy grew just 0.7% last quarter, ahead of a potentially destabilizing war with Iran
US GDP Expansion Slows to 0.7% Amid Iranian Conflict Outlook
New economic data released Friday reveals that the U.S. economy experienced modest growth of 0.7% during the fourth quarter, despite the looming threat of a potential war with Iran. This growth comes after a period of stagnation, as the Commerce Department noted that the prior quarter’s output was constrained by the historic government shutdown.
The initial GDP estimate for the October-December period had shown a 1.4% annualized rate, but the latest revision slashed that figure to 0.7%—a marked slowdown compared to the 4.4% growth recorded in the third quarter. Revisions to key sectors, including exports, consumer spending, and government expenditures, contributed to this downward adjustment. Exports, in particular, saw the most significant decline, dropping to -3.3% from -0.9% in the first estimate.
The government shutdown remained the primary factor reducing GDP in the fourth quarter, accounting for a 1.16 percentage point drag. While economists anticipate a recovery of these losses in the current quarter, ongoing inflationary pressures pose a challenge. January’s inflation data suggests that rising fuel costs are already affecting households, and the situation may worsen if the conflict in the Middle East persists.
“The full impact of the Iranian conflict on the U.S. economy and financial markets remains highly fluid and uncertain,” stated Kathy Bostjancic, chief economist at Nationwide, in an analyst note. “Extended disruptions could amplify uncertainty, leading to a sharper decline in business and consumer confidence.”
The fourth quarter marked the culmination of a difficult year for the U.S. economy, as President Trump pursued trade reforms and companies accelerated AI investments. Annual GDP growth for 2025 was 2.1%, the weakest since 2020 and the slowest in over a decade. Now, the nation faces the effects of Trump’s Middle Eastern conflict, which has already spiked oil prices and raised costs for consumers.
“Consumer sentiment has already dipped following the military action in Iran,” explained Joanne Hsu, director of the University of Michigan survey. “Readings declined by 2% this month, erasing earlier gains and signaling growing unease among households.”
The labor market continues to show signs of instability, with February’s job losses totaling 92,000 and the unemployment rate climbing to 4.4%. However, the Bureau of Labor Statistics reported a rise in job openings, reaching 400,000 in January, compared to December. Despite this, layoffs increased slightly to 2.1 million, according to the latest Job Openings and Labor Turnover report.
With job security concerns mounting, consumer spending has not yet rebounded. The Commerce Department’s January data indicates that spending remained flat at a 0.4% rate. Federal Reserve officials, set to meet soon, face a dilemma: easing rates to stimulate the economy could risk exacerbating inflationary trends.
