The U.S. economy surged to a blistering 5.4% GDP growth in Q4 2025—its strongest quarter since 2018—fueled by robust consumer spending and a sharply narrowed trade deficit, even as immigration enforcement and looming tariffs reshape the labor market and future outlook.
As we wrap up 2025, the U.S. and global economies continue to navigate a complex landscape shaped by trade policies, immigration shifts, and geopolitical tensions. In our latest Q4 Economic Report, we dive into the trends defining GDP growth, employment, monetary policy, and the broader global picture. Here's a concise summary of the highlights—perfect for staying informed on how these factors could impact commercial real estate and business decisions.
GDP Growth: A Robust Finish Despite Challenges
The U.S. economy showed remarkable strength in Q4 2025, with the Atlanta Fed's GDPNow model projecting a 5.4% growth rate—the highest since early 2018. This surge was driven by strong consumer spending, a narrowing trade deficit (down 39% to $29.4 billion in October, the lowest since 2009), and positive revisions in personal consumption expenditures (up to 3% in November). Business spending also held steady, with non-defense capital goods orders rising 0.7%.
Productivity jumped 4.9% in Q3, outpacing wage growth and keeping inflation in check. However, analysts note that much of this growth stems from reduced imports rather than pure domestic expansion. Looking ahead, Deloitte warns that tariffs could push core inflation to 3% in 2026, lingering above the Fed's 2% target until 2028 as costs gradually pass to consumers.
Employment: Cooling but Stable Amid Policy Shifts
Hiring slowed significantly in 2025, with only 584,000 jobs added for the year—down from over 2 million annually in prior years. December saw just 50,000 new positions, and revisions lowered October and November figures to 173,000 and 56,000, respectively. The monthly average of 49,000 jobs was the lowest since 2003 (excluding recession years).
Key factors include deportations and immigration enforcement, reducing net immigration from 2.27 million in 2024 to 410,000 in 2025, which reduced the worker supply. This kept the unemployment rate steady at 4.4%. Sectors like health care (713,000 jobs added, averaging 34,000 monthly) and leisure/hospitality (188,000 jobs) led growth, while manufacturing, retail (down 25,000 in December), and warehousing declined.
Fitch Ratings' Olu Sonola cautions that cyclical sectors aren't signaling comfort, and younger workers face higher unemployment due to AI competition and hiring caution tied to tariff uncertainties.
Monetary Policy: A New Era on the Horizon
The Federal Reserve faces a leadership shakeup as President Trump nominates Kevin Warsh to replace Jerome Powell, whose term ends in May. Warsh, a former Fed governor and inflation hawk, is praised for pragmatism but criticized for past attacks on the Fed. Market reactions are mixed; supporters like Canada's Prime Minister Mark Carney call it a "fantastic choice," while others worry about internal tensions.
This comes amid a Supreme Court ruling on presidential removal of Fed governors (e.g., Lisa Cook's case), testing the bank's independence. Warsh's appointment signals potential shifts in asset holdings, policy frameworks, and executive relations—echoing Paul Volcker's inflation-fighting era.
Global Economy: Resilient but Cautious Growth
The IMF projects global growth at 3.3% for 2026 and 3.2% for 2027, slightly up from 2025 estimates, thanks to easing trade tensions. U.S. growth accelerated to 4.3% in Q3, boosted by tech investments, while China slowed to 2.4% due to weak housing but strong exports. Europe varied: France grew 2.2% on aerospace, Germany stagnated, and Japan contracted 2.3%.
Trade volume is expected to dip to 2.6% in 2026 before rebounding, with policy uncertainty lower but still elevated. Oil prices may fall 7% due to oversupply, and bilateral deals add complexity. Overall, the world economy remains adaptable, with tech-driven exports providing a buffer.In summary, Q4 2025 paints a picture of U.S. resilience amid policy headwinds, with global stability hinging on trade resolutions. For commercial real estate stakeholders, these trends underscore opportunities in health care and tech sectors, while cautioning on inflation and labor shortages.
If you'd like a full copy of the Q4 2025 Economic Report, feel free to contact me directly at Lee & Associates.
Ron Mgrublian, Lee & Associates Commercial Real Estate Services
