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The US economy accelerated at the start of 2026, expanding at a modest 2% pace from January through March after recovering from last fall’s 43-day federal government shutdown. The Commerce Department reported Thursday that gross domestic product (GDP)—the nation’s output of goods and services—rebounded from a lackluster 0.5% expansion in the last three months of 2025.
Federal government spending and investment grew at a 9.3% annual rate in the first quarter, adding more than half a percentage point to growth after subtracting 1.16 percentage points in fourth-quarter 2025.
Consumer spending, which accounts for about 70% of US economic activity, slowed to 1.6% in the first quarter from 1.9% at the end of 2025. Spending on goods fell slightly, including spending on items such as food and clothing, while spending on services also slowed.
Business investment rose at an 8.7% annual pace, a development the report said was likely driven by spending related to artificial intelligence.
A weak housing market continued to weigh on the economy. Residential investment fell at an 8% annual pace, marking the fifth straight quarterly decline and the biggest drop since the end of 2022.
Excluding housing, nonresidential investment surged 10.4%, the largest increase in nearly three years.
An uptick in imports cut into overall growth. Imports rose at a 21.4% annual rate from January through March, subtracting more than 2.6 percentage points from first-quarter GDP growth.
“This is a split-screen economy,” Heather Long, chief economist at the Navy Federal Credit Union, wrote. “Companies and investors involved in AI are on fire. Meanwhile, middle and moderate income households are struggling with high gas prices … Consumption is slowing as people are struggling to manage all their bills and growing more concerned about the future.”
A category within the GDP data that measures underlying strength grew at a solid 2.5% pace, accelerating from 1.8% in fourth-quarter 2025. This measure includes consumer spending and private investment, while excluding more volatile items such as exports, inventories, and government spending.
The first quarter included about a month of the conflict involving Iran.
Iran has blocked the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas passes. The disruption has driven energy prices higher, fueling inflation and pressuring consumers.
On Wednesday, the Federal Reserve kept its benchmark interest rate unchanged and cited “a high level of uncertainty” tied to the conflict.
Carl Weinberg, chief economist at High Frequency Economics, did not forecast first-quarter GDP growth. “The truth is that we do not have any defensible basis for trying to project how these indicators will print,” Weinberg wrote in a commentary Monday. “Trump’s war with Iran has led to a total blockade of the Strait of Hormuz. We do not know how to model the impact of that event, as we have never seen anything quite like it.”
Thursday’s report was the first of three Commerce Department estimates.
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