U.S. economic output accelerated at the start of 2026, expanding at a modest 2% pace from January through March after rebounding from last fall’s 43-day federal government shutdown, according to the U.S. Department of Commerce. The report marked the first of three Commerce estimates for the quarter and showed growth that was firmer than the 0.5% pace recorded in the final three months of 2025.
In the spending breakdown, the federal government’s spending and investment rose at a 9.3% annual rate in the first quarter. That helped add more than half a percentage point to overall growth after the fourth-quarter figures had reflected a 1.16 percentage-point subtraction, the Commerce report said.
Households contributed less momentum than at the end of last year. Consumer spending—accounting for 70% of U.S. economic activity, as the report described—slowed to a 1.6% annual pace in the first quarter from 1.9% at the end of 2025. The data also showed spending on goods falling slightly, while spending on services slowed.
Business investment, however, rose. Investment moved higher at an 8.7% annual pace, and the report attributed at least part of that strength to spending tied to artificial intelligence. The picture was uneven as well, with a weak housing market continuing to weigh: residential investment fell at an 8% annual pace, the fifth straight quarterly drop, and it was the biggest decline since the end of 2022. Excluding housing, nonresidential investment surged at a 10.4% annual pace, the largest jump in nearly three years.
Trade and the wider environment further complicated the outlook. An uptick in imports cut into first-quarter growth as imports rose at a 21.4% annual rate from January through March, subtracting more than 2.6 percentage points from GDP. The report also flagged the role of the Iran conflict, noting that the war had reached into the quarter by about a month and that Iran had blocked the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas passes—an escalation that lifted energy prices and fed into inflation pressure.
Heather Long, chief economist at Navy Federal Credit Union, described the data as uneven between sectors and incomes. In an analysis quoted alongside the GDP release, she wrote, “This is a split-screen economy. 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.”
Within the GDP report, the category that tracks the economy’s underlying strength grew at a solid 2.5% clip, accelerating from 1.8% in the fourth quarter of 2025. That measure includes consumer spending and private investment but excludes volatile items such as exports, inventories and government spending, according to the release described in the report.
The Federal Reserve, which kept its benchmark interest rate unchanged on Wednesday, also pointed to uncertainty linked to the conflict. The report said the central bank cited “a high level of uncertainty″ arising from the conflict. Carl Weinberg, chief economist at High Frequency Economics, said he did not forecast first-quarter GDP growth, writing that there was “no defensible basis” for projection and that the effect of the Iran-related disruption could not be modeled because “we have never seen anything quite like it.”