WASHINGTON (AP) — The U.S. economy accelerated in early 2026, expanding at a modest 2% pace from January to March after recovering from a 43-day federal government shutdown last fall. However, the outlook is uncertain iran war.
The Commerce Department reported Thursday that gross domestic product, the country’s output of goods and services, has rebounded from a 0.5% slump in the last three months of 2025. Federal government spending and investment increased at an annualized rate of 9.3% in the first quarter, adding more than 0.5 percentage points to the growth rate, after falling by 1.16 percentage points in the fourth quarter of 2025.
growth of consumption expenditureEconomic growth, which accounts for 70% of U.S. economic activity, slowed to 1.6% in the first quarter from 1.9% at the end of 2025. Spending on goods, including food and clothing, fell slightly. Spending on services slowed.
However, business investment grew at an 8.7% pace, likely driven by spending on artificial intelligence. a Sluggish housing market The economic burden continues. Housing investment fell at an annual rate of 8%, marking the fifth consecutive quarter of decline and the largest decline since the end of 2022. Non-residential investment excluding housing rose 10.4%, the largest increase in nearly three years.
Imports rose at an annual rate of 21.4% in the January-March period, but pushed down the growth in the first quarter by more than 2.6 percentage points.
“This is a split-screen economy,” said Heather Long, chief economist at Navy Federal Credit Union. “Companies and investors involved in AI are furious. Meanwhile, middle- and moderate-income households are struggling with rising gas prices… Consumption is slowing as people struggle to manage all their bills and worry about the future grows.”
Still, the category of GDP data that measures economic strength showed solid growth of 2.5%, an acceleration from 1.8% in the fourth quarter of 2025. This category includes personal consumption and private investment, but excludes volatile items such as exports, inventories, and government spending.
The first quarter included about a month of conflict in Iran. Iran has closed off the Strait of Hormuz, through which one-fifth of the world’s oil and liquefied natural gas passes. This has caused energy prices to soar, fueling inflation and hurting consumers. The US Federal Reserve (Fed) announced on Wednesday that it would keep its benchmark interest rate unchanged due to the “high level of uncertainty” arising from the conflict.
Carl Weinberg, chief economist at High Frequency Economics, didn’t even predict GDP growth for the first quarter. “The truth is there is no defensible basis for trying to predict how these metrics will display,” Weinberg wrote in a commentary Monday. President Donald Trump: “President Trump’s war with Iran led to a total closure of the Strait of Hormuz. We don’t know how to model the impact of that event because we’ve never seen anything quite like it.”
Thursday’s report was the first of three estimates from the Commerce Department.
