U.S. economic growth rebounded in the first quarter of 2026, boosted in part by a recovery following the previous quarter’s government shutdown.
Gross domestic product increased at a 2% annualized rate, according to the Commerce Department’s advance estimate released April 30. The department will revise it, like all GDP estimates, as more data becomes available.
GDP measures the value of all goods and services an economy produces. When compared to readings for the previous quarter and the same period a year earlier, it serves as an indicator of how strong the U.S. economy — and its component parts — really are.
Q1 Growth Beats Last Year, Misses Forecasts
The reading was stronger than the department’s latest estimate of 0.5% GDP growth in the fourth quarter of 2025 and came in much stronger than the first quarter of 2025, when GDP contracted by 0.5%. It fell short of the 2.3% annual increase consensus forecast reported by Trading Economics ahead of the report’s release.
The 2% expansion “reflected upturns in government spending and exports, and an acceleration in investment that were partly offset by a deceleration in consumer spending,” the Commerce Department said. Imports, which are a subtraction in the calculation of GDP, also increased, it added.
What the Fed and Economists Are Saying
The day before the report’s release, Federal Reserve Chair Jerome Powell said the economy has been “quite resilient” despite inflationary shocks tied to the Iran war.
“Growth is really solid across our economy,” Powell told reporters April 29. “Some of that is that consumer spending is hanging in pretty well — the most recent data are good — and some of it is just the apparently insatiable demand for data centers.”
He added that he has “every reason” to believe business investment into data centers will continue.
“The core of the economy remained solid in Q1, driven by the AI buildout and the tax cuts beginning to feed through,” Oxford Economics’ Chief U.S. Economist Michael Pearce said in a note. “Those factors will continue to drive growth over the rest of the year, but the jump in energy prices will take some of the shine off what would otherwise have been a strong year for the economy.”
Iran War, Energy Prices Add Uncertainty
Impacts of the Iran war started showing up in economic data in March. The Labor Department’s Consumer Price Index — a measure of inflation year over year — rose to 3.3% in March, up from 2.4% the month prior. A record 21.2% March surge in gasoline prices drove the increase.
“As long as the economy continues to grow and companies are able to grow earnings, we can see higher stock prices even in the face of higher energy prices and inflation,” said Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management. “However, the longer the war drags on, the more investors will grow nervous and we could see some pullbacks as fears ebb and flow.”
The Commerce Department’s second estimate of first-quarter GDP for 2026 is scheduled to be released on May 28.
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