Do GDP numbers mask deeper economic woes?

The US economy looked surprisingly resilient in 2025, according to GDP data the Bureau of Economic Analysis (BEA) released on February 20. But that surface strength may be hiding a few cracks: Economic growth might be resting on the AI boom and spending among higher-income consumers. And monthly PCE data suggests the Fed won’t be cutting benchmark interest rates any time soon.

2025 GDP looks solid: For 2025, inflation-adjusted, or real, GDP was up 2.2%, compared with 2.8% growth in 2024. Consumer spending and investment drove the gains, the BEA said. “Zooming out to 2025, growth clearly cooled, but given the policy whiplash, coming in above 2% looks better than it had any right to,” Olu Sonola, head of US economics at Fitch Ratings, said in a note, according to Bloomberg.

Q4 growth weak: The advance estimate of real GDP growth for Q4 2025, meanwhile, came in at a tepid 1.4%, less than the 2.5% increase that analysts from Dow Jones predicted and lower than a survey of Bloomberg economists anticipated, and far below Q3’s 4.4% growth.

But the Q4 dip may need an asterisk next to it, analysts said, because the quarter’s results were heavily affected by the 43-day government shutdown. The BEA estimated that the shutdown depressed economic growth by about one percentage point.

“Strip out the shutdown drag and growth looks closer to 2.5%, with the US consumer still carrying the load and AI-linked investment doing real work,” Sonola said.

Cracks in the foundation? Consumer spending increased in Q4 but at a slower pace, the BEA said, while business investment was up 3.7%.

Much of the business investment, though, can be attributed to AI. Subtract computer equipment and software from the equation, and business investment has dropped for each of the last three quarters, according to Bloomberg.

“The big concern in the GDP numbers is investment other than what companies need for AI,” Tani Fukui, economist and senior director at MetLife Investment Management, told Barron’s. “We knew the government [spending] was going to be a negative, and that will likely be reversed in the first quarter, but the giant sucking sound of AI investment is hurting investment in other sectors that may also be value-creating.”

Consumer split. Consumer sentiment barely budged from January’s reading in the University of Michigan’s survey, and it was 13% lower than it was in February 2025. For the past seven months, Survey of Consumers Director Joanne Hsu wrote, more than 40% of survey-takers “spontaneously mentioned high prices eroding their personal finances.”

The K-shaped economy—in which wealthier consumers see gains while lower-income ones struggle—was on full display in the survey.

Sentiment for consumers with the largest stock holdings saw a “sizable” monthly increase, Hsu said, but that was “offset” by a decline in optimism among those who held no stocks. Likewise, “higher-income or college educated consumers exhibited increases in sentiment,” she noted, “while lower-income or less-educated counterparts did not.”

The BEA’s data on consumer spending for December 2025 indicated that spending rose on services but dropped on goods. December’s biggest spending increases were in the areas of housing and utilities (up $29.4 billion); recreation services (+$20.9b), particularly gambling, which saw an almost $9b increase; and healthcare (+$20.5b). (In fact, healthcare spending claimed a record share of GDP last quarter, per Bloomberg.)

Inflation measure stays high: The personal consumption expenditures price index, which the Fed uses to gauge inflation, was up 0.4% for the month of December, the BEA said. It was 3% higher than a year ago, outpacing the Fed’s goal of keeping inflation at 2%, per Barron’s.