The US economy accelerated at the start of 2026, posting a 2% growth rate from January through March, according to Commerce Department data released Thursday. This marks a recovery from the lackluster 0.5% expansion in late 2025, which was weighed down by a 43-day federal government shutdown.
Federal government spending and investment surged at a 9.3% annual rate in the first quarter, adding more than half a percentage point to GDP growth after dragging it down by 1.16 points in the previous quarter. Business investment, driven largely by spending in artificial intelligence, rose at an 8.7% pace, while nonresidential investment excluding housing surged 10.4%, the largest jump in nearly three years.
Consumer Concerns Persist
However, consumer spending, which accounts for 70% of US economic activity, slowed to 1.6% from 1.9% in late 2025. Spending on goods and services both declined, reflecting growing concerns among middle- and moderate-income households struggling with high gas prices and inflation fueled by the Iran conflict.
"This is a split-screen economy," said Heather Long, chief economist at Navy Federal Credit Union. "Companies and investors involved in AI are on fire. Meanwhile, middle and moderate income households are struggling with high gas prices."
Iran Conflict Clouds Outlook
The ongoing conflict with Iran, which has blocked the Strait of Hormuz—a critical global oil chokepoint—has driven energy prices higher, exacerbating inflation and consumer concerns. The Federal Reserve cited "a high level of uncertainty" from the conflict in its decision to keep benchmark interest rates unchanged this week.
Carl Weinberg, chief economist at High Frequency Economics, noted the unprecedented impact of Iran's Strait of Hormuz blockade: "We do not know how to model the impact of that event, as we have never seen anything quite like it."
Despite these challenges, a key category measuring the economy’s underlying strength grew at a solid 2.5% clip, accelerating from 1.8% in late 2025. This metric excludes volatile items like exports, inventories, and government spending.