U.S. Economy Grew 2% in First Quarter, Short of Forecasts

The U.S. economy grew at a 2 percent annual rate from January through March, the Commerce Department’s Bureau of Economic Analysis reported Thursday in its first estimate for the quarter. That fell short of the 2.3 percent that economists polled by LSEG had expected, Fox Business reported, and it marked a rebound from the 0.5 percent pace of the final three months of 2025.

The agency said growth was driven by investment, exports, consumer spending and government spending, partly offset by a rise in imports, which subtract from the total. Fox Business reported that the investment gain was concentrated in equipment, especially computers and related gear tied to the buildout of artificial intelligence, along with software. Spending on new buildings, both residential and commercial, declined.

Government spending rose as federal employee pay rebounded after the record-long government shutdown that dragged on the end of last year, according to Fox Business. The Boston Globe, citing the same report, said the shutdown was part of why growth slowed so sharply in the fourth quarter.

Consumer spending, which accounts for about 70 percent of the economy, rose 1.6 percent, slightly better than expected, the Boston Globe reported. Fox Business said the increase came mainly from services, led by health care. A separate measure that adds consumer spending to private investment rose 2.5 percent, up from 1.8 percent in the fourth quarter, according to both outlets.

The report offers a first official look at how the war with Iran is feeding into the economy. The Boston Globe reported that the effective closure of the Strait of Hormuz has pushed oil prices up more than 60 percent, with Brent crude near $120 a barrel this week, up from about $70 in February. Because the growth figure is adjusted for inflation, higher fuel costs held it down somewhat. The Federal Reserve left interest rates unchanged on Wednesday, Fox Business noted, as Jerome Powell’s term as chair nears its end.

Economists described a solid number with an uncertain outlook. Michael Pearce, chief U.S. economist at Oxford Economics, told Fox Business that the economy’s core remained solid, helped by the AI buildout and by tax cuts beginning to flow through to households, though he said the jump in energy prices will take some shine off the year. Gregory Daco, chief economist at EY-Parthenon, said growth rests on three narrow pillars: affluent consumers, AI investment and gains in asset prices, and that the headline hides underlying fragilities.

Jason Draho, head of asset allocation for the Americas at UBS, told the Boston Globe that on net it was a solid number and that consumer spending had held up, but he warned that the strength could be fully offset if high energy prices persist for six months. Diane Swonk, chief economist at KPMG, said the period echoes the disruptions that followed the pandemic and that the gains mask consumers’ economic anxiety.

Inflation is part of that anxiety. The Boston Globe reported that the Fed’s preferred price gauge rose 3.5 percent in March from a year earlier, the fastest annual pace since 2023, and that the University of Michigan’s consumer sentiment index fell to a record low in April. Even so, the Globe noted that stock indexes are near record highs and most economists still expect the economy to keep expanding this year rather than fall into recession. The first estimate is also subject to revision, and the agency’s later readings can differ substantially.