By Peter Navarro | RealClearMarkets | February 20, 2026
The markets got a twin dose of macro indicators today—GDP growth and PCE inflation—and, almost on cue, much of the commentary missed the signal for the noise.
Start with growth.
Real GDP in 2025:Q4 came in at 1.4%, well below the 2.8% consensus estimate. The immediate narrative was predictable: the economy is slowing into 2026, momentum is fading, the expansion is rolling over, tariffs are to blame.
That reading is wrong.
According to the Council of Economic Advisers, the topline was artificially depressed by the 43-day Schumer–Jefferies federal shutdown—the longest in U.S. history. CEA estimates the shutdown shaved about 2 percentage points off headline GDP: 1.0 percentage point from federal payrolls, 0.4 percentage points from federal contracts, and 0.7 percentage points from spillover effects, assuming a 1.5 consumption multiplier.
The BEA’s own accounting shows federal government expenditures subtracted 1.15 percentage points from growth in Q4. Strip that out, and growth would have printed north of 3%—right in line with expectations.
Importantly, much of this hit is mechanical. As furloughed workers return and federal activity normalizes, roughly 1.0 to 1.5 percentage points of growth should bounce back in Q1. But the spillover effects—lost activity, deferred hiring, shelved contracts—are permanent. That lost output to shutdown politics doesn’t reappear on a future balance sheet.
Look beneath the hood and the private sector story is solid.