Economic Update 2-23

Top 5 Takeaways This Week:

• Fourth-quarter GDP slowed sharply to 1.4%, largely due to the government shutdown and weaker exports.

• Government spending contracted by 5.1%, negatively impacting overall economic growth.

• Exports declined 0.9% following a strong surge in the prior quarter.

• Housing remains a bright spot, with building permits and new home sales near multi-year highs.

• Economic growth could reaccelerate once budget issues are resolved and the federal government is fully operational.

There were various economic reports last week, but the most anticipated release was the GDP report for the fourth quarter of 2025. This showed the U.S. economy grew at an annualized rate of 1.4% during the last quarter of the year. This level of growth was well below the 4.4% expansion we saw during the third quarter of 2025 and much weaker than the forecasted level of 3.0%.

The government shutdown last year from October 1st through November 12th was the primary reason for the decline in economic growth. Various sectors of the overall economy were negatively impacted by federal government agencies being shut down entirely or operating at reduced levels. Government spending during the quarter contracted at a rate of 5.1%. One of the other primary reasons for the softening in GDP growth during the latest quarter was a decline in exports. Following a surge of 9.6% during the previous quarter, exports fell by 0.9% during the fourth quarter.

Until the government shutdown, many economists felt we could see growth in the U.S. approach 5%. Unfortunately, we are now in the second partial government shutdown of 2026. The first lasted only four days, from January 31st through February 3rd. The current shutdown began on the 14th of this month and is continuing as of today. The primary budget issue leading to this disruption involves the Department of Homeland Security. It is obviously time for these budgetary issues to be resolved and to have a fully open and operating federal government. I will leave it at that and let your personal political views determine how best to move forward.

One of the most promising sectors in the economy is real estate. In December, building permits increased by 4.8% to an annualized rate of 1.455 million units. This was the highest level since March of last year. Another encouraging development was that sales of new single-family homes in the U.S. were above expectations at year-end. In November, the annualized level of sales was 758,000 units. This represented a four-year high in sales. The December level of 745,000 units was only slightly below November and was the second strongest month during the past four years.

Two factors were at work to achieve these results. First, we are seeing personal incomes rise. Second, interest rates are falling, which translates into lower mortgage rates. The real estate market is always a good leading indicator of economic direction. We anticipate continued economic growth in the 4–5% range once Congress acts responsibly and delivers a final budget that allows the government to be fully open and operating at total capacity.

I think regardless of your political views and affiliations, yesterday’s win by the USA Hockey team over Canada should allow for tremendous pride in our feelings about America. The Gold Medal by the USA Hockey team will serve as a highlight for years to come.