US economy grew slower than expected in the first three months of 2026 as inflation, rising fuel prices and uncertainty linked to the Iran war continued to pressure households and businesses. Economists say the ongoing conflict in the Middle East is beginning to impact on economic momentum by pushing up oil prices and increasing the cost of living for Americans.
Real gross domestic product (GDP) grew at an annual rate of 1.6% between January and March, according to updated data released by the U.S. Bureau of Economic Analysis. This was lower than the earlier estimate of 2.0%.
Regardless of the downward revision, growth remained higher than the 0.5 per cent annual rate recorded in the fourth quarter of 2025. Though, growth improved slightly, as reported by Reuters, economists believe the US economy is losing strength and could slow further in the coming months.
Positive factors of the economy
The growth during the quarter was supported by exports, business investment, consumer spending and government spending. Artificial intelligence-related investments remained one of the biggest drivers of economic activity, with companies continuing to spend heavily on technology and equipment. However, imports also increased sharply during the quarter. Since imports reduce GDP calculations, they pulled down the overall growth figure.
Government spending and exports improved strongly compared to the previous quarter, while business investment also accelerated.
Consumer spending began to slow
Consumer spending, which makes up more than two-thirds of the US economy, grew at a slower pace than initially estimated. Spending increased by 1.4%, lower than the earlier estimate of 1.6%. Rising gasoline prices and inflation continued to squeeze household budgets, though large tax refunds helped many Americans manage higher expenses for a short period.
Economists warn that consumer spending could weaken further if fuel prices remain high because of the Iran conflict and continued disruptions in global energy markets.
Businesses continued heavy investment
Business spending on equipment remained strong, rising at a 17.2% annual rate during the quarter. Much of this investment was linked to artificial intelligence and technology expansion. A key measure of domestic demand known as “final sales to private domestic purchasers” grew by 2.4%, slightly lower than the earlier estimate of 2.5%.
Inflation remained elevated
Inflation stayed high during the first quarter of 2026. The price index for gross domestic purchases increased 3.5%, while the Personal Consumption Expenditures (PCE) price index, one of the Federal Reserve’s preferred inflation measures rose 4.5%. Core inflation, which excludes food and energy prices, increased 4.4%. Economists say the Iran war has added fresh pressure on oil prices and transportation costs, making it harder for inflation to cool.
Corporate profits increased by $40.4 billion in the first quarter, much slower than the $246.9 billion increase recorded in the previous quarter. The sharp slowdown explains many companies are facing rising operating costs and weaker consumer demand. Another important measure of the economy, called Gross Domestic Income (GDI), grew at a 0.9% rate in the first quarter, compared with 1.6% growth in the previous quarter. When GDP and GDI are averaged together, the economy grew by 1.3%.
More economic pressure expected ahead
Economists expect economic growth to slow further in the second quarter of 2026 as the Iran conflict continues to fuel inflation and increase uncertainty in global markets. Higher oil prices are expected to add pressure on consumers, businesses and policymakers in the months ahead.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.
