By Jeffry Bartash
Iran conflict and Supreme Court tariff ruling add to air of uncertainty around the economy
The U.S. economy was hurt at the end of last year by the government shutdown. Severe winter weather could do the same in the first quarter.
The numbers: The U.S. economy grew at a much slower pace in the waning months of 2025 than previously reported, a new GDP update showed, after the government shutdown last fall left a big hole.
Gross domestic product expanded at a lackluster 0.7% annual pace in the fourth quarter, the government said Friday. The original increase was put at 1.4%.
The slowdown in U.S. growth, at least officially, is not expected to last though.
The reopening of the government, bigger tax refunds and more military spending ahead of the conflict with Iran are likely to raise GDP in the first quarter, offsetting the impact of severe winter weather on consumer spending.
A forecast by the Atlanta Federal Reserve suggests GDP could rise at a 2.7% annual pace in the January-to-March time frame.
Big picture: The economy is in decent shape, but inflation is stubbornly high and the labor market is a big sore spot. Companies are barely adding any new jobs.
Consumers and business leaders were hopeful conditions would improve in 2026. Yet the conflict with Iran and Supreme Court decision striking down the original Trump tariffs have added to an air of uncertainty around the economy and the financial markets.
Market reaction: The Dow Jones Industrial Average and S&amp;P 500 were set to rise slightly on Friday. but stocks are still under pressure from the conflict with Iran.
-Jeffry Bartash
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
03-13-26 0836ET

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The U.S. economy grew at a slow 0.7% annual pace in Q4 2025, down from an initial estimate of 1.4%, impacted by a government shutdown and severe winter weather. However, growth is expected to rebound in Q1 2026 due to government reopening, increased tax refunds, and military spending amid the Iran conflict. The Atlanta Fed forecasts a 2.7% growth rate for early 2026. Despite a decent economic outlook, high inflation and a stagnant labor market raise concerns, compounded by geopolitical uncertainties. Market indices like the Dow and S&P 500 showed slight gains but remain under pressure from ongoing conflicts.

- The U.S. economy grew at a slower rate of 0.7% in the fourth quarter of 2025, impacted by a government shutdown and severe winter weather.  
- However, growth is anticipated to rebound to 2.7% in the first quarter of 2026 due to government reopening, increased tax refunds, and military spending amid the Iran conflict.  
- Despite these optimistic forecasts, high inflation and a stagnant labor market contribute to ongoing uncertainty in the economy and financial markets.

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GDP grew at a tepid 0.7% pace in the fourth quarter. The future is foggy, too.