In early 2026, the U.S. economy saw a moderate acceleration, expanding at a 2% rate between January and March, rebounding from a 43-day federal government shutdown that occurred the previous fall. However, the ongoing war in Iran casts a shadow over future prospects.
The Commerce Department announced on Thursday that the nation’s gross domestic product (GDP) bounced back from a rather lackluster growth of just 0.5% during the last quarter of 2025.
Federal spending and investment surged, rising at an annual rate of 9.3% in the first quarter, boosting the overall growth rate significantly after a decrease of 1.16 percentage points in the previous quarter.
Consumer spending, which constitutes about 70% of economic activity, slowed to 1.6% from 1.9% at the end of 2025, reflecting a slight dip in expenditures on goods like food and clothing, as well as a reduction in spending on services.
Despite this, business investment saw an increase of 8.7%, likely spurred by expenditures in artificial intelligence. Meanwhile, the housing market continues to struggle, with housing investment declining at an annual rate of 8%. This marks the fifth consecutive quarter of decline, the steepest drop since late 2022. However, non-residential investment outside of housing climbed 10.4%, the most significant rise in nearly three years.
During the January-March period, imports surged at an annualized pace of 21.4%, contributing to a reduction in growth by more than 2.6 percentage points.
Heather Long, the chief economist at Navy Federal Credit Union, remarked, “This is a split-screen economy. Companies and investors in AI are flourishing while middle- and lower-income households grapple with rising gas prices. Consumption is slowing as families find it tough to keep up with bills amidst growing concerns about the future.”
Nevertheless, a metric reflecting economic strength showed robust growth of 2.5%, a rebound from 1.8% in late 2025. This measure accounts for factors like personal consumption and private investment while excluding more volatile components, such as exports and government spending.
The first quarter included nearly a month of conflict in Iran, which has blocked the Strait of Hormuz—crucial for global oil and natural gas supply—leading to an increase in energy prices and contributing to inflation that burdens consumers.
On Wednesday, the U.S. Federal Reserve decided to maintain its benchmark interest rate, citing the “high level of uncertainty” related to the ongoing conflict.
Carl Weinberg, chief economist at High Frequency Economics, expressed skepticism about GDP growth predictions, stating, “Honestly, there’s no sound basis for forecasting these indicators.”
In commentary, President Trump noted, “The conflict with Iran has led to the complete closure of the Strait of Hormuz. The ramifications of this are unprecedented and challenging to predict.”
Thursday’s announcement marks the first of three estimates that will be released by the Commerce Department.
