U.S. economy grew 2% from January-March, recovering from federal shutdown; Iran war clouds outlook

WASHINGTON (AP) — The U.S. economy accelerated at the start of 2026, expanding at a modest 2% pace from January through March after recovering from last fall’s 43-day federal government shutdown. But the outlook is clouded by the Iran war.

The Commerce Department reported Thursday that gross domestic product — the nation’s output of goods and services — rebounded from a lackluster 0.5% expansion the last three months of 2025. The federal government’s spending and investment grew at a 9.3% annual rate in the first quarter, adding more than half a percentage point to growth after lopping off 1.16 percentage points in fourth-quarter 2025.

Growth in consumer spending, which accounts for 70% of U.S. economic activity, slowed to 1.6% in the first quarter from 1.9% at the end of 2025. But business investment, likely driven by investments in artificial intelligence, rose at an 8.7% pace.

Iran has blocked the Strait of Hormuz through which a fifth of the world’s oil and liquefied natural gas passes. That has driven energy prices higher, fueling inflation and hurting consumers. The Federal Reserve, announcing Wednesday that it was keeping its benchmark interest unchanged, cited “a high level of uncertainty″ arising from the conflict.

Carl Weinberg, chief economist at High Frequency Economics, did not even bother to forecast first-quarter GDP growth. “The truth is that we do not have any defensible basis for trying to project how these indicators will print,” Weinberg wrote in a commentary Monday. President Donald “Trump’s war with Iran has led to a total blockade of the Strait of Hormuz. We do not know how to model the impact of that event, as we have never seen anything quite like it.″

Thursday’s report was the first of three Commerce Department estimates