U.S. economy grew 2% from January-March, recovering from federal
shutdown; Iran war clouds outlook
[May 01, 2026] By
PAUL WISEMAN
WASHINGTON (AP) — The U.S. 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. But the
outlook is clouded by the Iran war.
The Commerce Department reported Thursday that gross domestic product —
the nation’s output of goods and services — rebounded from a lackluster
0.5% expansion the last three months of 2025. The federal government’s
spending and investment grew at a 9.3% annual rate in the first quarter,
adding more than half a percentage point to growth after lopping off
1.16 percentage points in fourth-quarter 2025.
Growth in consumer spending, 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.
But business investment, likely driven by spending in artificial
intelligence, rose at an 8.7% pace. A weak housing market continues to
weigh on the economy. Residential investment fell at an 8% annual pace —
the fifth straight quarterly drop and the biggest since the end of 2022.
Excluding housing, nonresidential investment surged 10.4%, biggest jump
in nearly three years.
An uptick in imports, which rose at an annual rate of 21.4% from
January-March, slashed more than 2.6 percentage points off first-quarter
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.’’
[to top of second column] |
 Still, a category within the GDP
data that measures the economy’s underlying strength grew at a solid
2.5% clip, accelerating from 1.8% in fourth-quarter 2025. This
category includes consumer spending and private investment, but
excludes volatile items like exports, inventories and government
spending.
The first quarter included about a month of the clash in Iran. Iran
has blocked the Strait of Hormuz through which a fifth of the
world’s oil and liquefied natural gas passes. That has driven energy
prices higher, fueling inflation and hurting consumers. The Federal
Reserve, announcing Wednesday that it was keeping its benchmark
interest unchanged, cited “a high level of uncertainty″ arising from
the conflict.
Carl Weinberg, chief economist at High Frequency Economics, did not
even bother to 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.
President Donald “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.
All contents © copyright 2026 Associated Press. All rights reserved
 |
