The Bureau of Economic Analysis said the US economy expanded at an annual rate of 2% in the first quarter of 2026, improving from 0.5% in the previous quarter as per advance estimate. The data gives the first clear picture of economic activity between January and March, a period that ended just as the Iran conflict began affecting global energy markets. Economists had expected slightly stronger growth of around 2.3%, but the figures still show that the economy entered the year on relatively stable ground.
Business investment leads growth
A key factor of this growth was a sharp increase in business spending. Investment in equipment rose by 10.4%, the fastest pace in nearly three years. Much of this came from spending on artificial intelligence, software and data centre infrastructure. Companies are continuing to invest heavily in technology, and this has become one of the strongest pillars supporting economic expansion.
Consumer spending stays steady
As reported by Bloomberg, consumer spending, which makes up roughly two-thirds (around 70%) of the economy, increased at a 1.6% annual rate. While this was slower than in the previous quarter, it still provided steady support to growth. Spending was mainly driven by services such as healthcare, including hospital and outpatient care, as well as financial services.
Government spending rebounds
Government expenditure also played a role in boosting growth. Bloomberg reported that after subtracting 1.16 percentage points from GDP in the previous quarter due to a federal shutdown, the biggest hit since early 1994, government spending rebounded by 4.4% in the first quarter of 2026. This recovery helped strengthen overall economic output.
Trade pulls growth down
Regardless of gains in several sectors, trade acted as a drag. Net exports reduced growth by 1.3 percentage points, the largest negative impact in about a year. This was mainly due to a sharp rise in imports, as businesses rushed to bring goods into the country following changes in trade policies earlier in the year.
Underlying demand improves
A key measure of core demand, known as real final sales to private domestic purchasers, rose by 2.5%, up from 1.8% in the previous quarter. Inflation increased significantly during the quarter. The personal consumption expenditures (PCE) price index rose by 4.5%, up from 2.9%in the previous quarter. Excluding food and energy, core inflation climbed to 4.3% from 2.7%. On a monthly basis, prices rose by 0.7% in March, the biggest increase since 2022, however, annual inflation stood at 3.5%.
A major reason for this rise was a surge in oil prices. The effective closure of the Strait of Hormuz pushed Brent crude prices from around $70 per barrel in February to about $120 per barrel, a jump of more than 60%. Contracts for July delivery also crossed $100 per barrel, raising concerns about continued supply disruptions.
Signs of resilience remain
Regardless of rising inflation and global uncertainty, the economy continues to show strength. Jobless claims dropped to their lowest level since the late 1960s, indicating that layoffs remain limited. Strong demand for technology infrastructure and steady consumer spending have helped keep the economy on track.
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