Noisy fourth quarter growth, but consumer remains solid

Trend watch

Global freight is currently in a holiday lull period with the simultaneous occurrence of Ramadan, Lunar New Year, and Mardi Gras in 2026. This overlap is exceptionally rare, having last occurred in 2002 and won’t potentially happen again for another 33 years.

Of the three, Lunar New Year is the most impactful economically as it is widely celebrated across East and Southeast Asia; most notably in China, Vietnam, South Korea, Indonesia, Thailand, and the Philippines. Typical celebrations include local and regional festivals, family reunions, and feasts. In China, most workers get a paid eight-day public holiday.

Meanwhile, weekly air passenger counts jumped 12.0% in the past week to 17.4 million, the highest amount thus far this year and up 3.2% compared to a year ago. Clearly folks are seeking a respite from the abnormally cold temperatures that have chilled much of the United States for the past couple months. 

Our take

Much like a baseball announcer jinxing a no-hitter by the mere mention, apparently, we did the same to economic data last week after noting that most had been surprising to the upside in 2026. Alas, U.S. economic growth during the fourth quarter came in at just 1.4%.

However, the fourth quarter was quite noisy thanks to the 43-day partial federal government shutdown. That contributed to the sharp pullback in federal spending, which dropped 16.6% during the quarter. Within that, defense spending had its largest quarterly decline since 2014. As an aside, we expect both to snap back sharply in the first quarter.

Meanwhile, consumer spending rose 2.4% in the last three months of the year – in line with the pre-pandemic trend. It was the largest contributor to economic growth – as it nearly always is. To be fair, that’s more than a full percentage point slower than the prior quarter. Conversely, it, too, was crimped by the federal government shutdown, and should also rebound in the current quarter.

That’s not to say that “the economy is doing great.” It most definitely isn’t firing on all cylinders, particularly for almost anything related to housing, which has been in a bad neighborhood for the better part of the past three years. Additionally, segments of the manufacturing sector remain in the doldrums, especially those impacted by the ongoing trade and tariff uncertainty.

Nonetheless, 2025 was good for gross domestic product (GDP) but had very little job growth. Based on the recent upswing in economic data thus far in 2026, it appears that this dynamic is likely to persist for a while longer.

Bottom line

The U.S. economy remains resilient, but the data is still muddied by the government shutdown, which has created distortions and delays. Accordingly, we probably won’t get a clear read on the economy until early March. Nonetheless, we expect an uptick in U.S. growth to 2.5% in 2026. But the unevenness within the economy makes it feel more like there’s one foot on the gas (fiscal and monetary stimulus) and one foot on the brake (trade and tariff uncertainty, underwhelming job growth).