The U.S. economy grew at a 2 percent pace in the first three months of the year, as higher investment and a rebound in government spending buoyed business activity while consumers showed signs of fatigue amid rising prices.
Growth accelerated from the previous quarter, which was hurt by the longest government shutdown in history, according to the Commerce Department report on gross domestic product, the sum of goods and services made in the United States. But it fell short of Wall Street analysts’ expectations of 2.2 percent growth and is running below the Congressional Budget Office’s estimate of the economy’s potential to grow without aggravating inflation.
Prices rose at an annual rate of 4.5 percent, according to the Federal Reserve’s preferred price gauge, the personal consumption expenditures index, up from 2.9 percent in the previous quarter. Excluding volatile food and energy costs, the index rose at a rate of 4.3 percent.
With prices rising faster than its 2 percent target, the Fed left its benchmark lending rate unchanged Wednesday.
Higher export sales also contributed to the economy’s growth. But imports, which are effectively subtracted from the GDP calculation, rose as businesses rushed to stock up on imported goods following the Supreme Court’s February ruling invalidating much of President Donald Trump’s tariff agenda.
The impact of the war in Iran, which began on Feb. 28, was largely confined to higher prices. The prolonged interruption of oil and gas shipments through the Strait of Hormuz drove up the price of gasoline, diesel fuel, natural gas and jet fuel. Regular gasoline now averages $4.30 per gallon, a four-year high, according to AAA.
The $31 trillion economy continues to power through a series of shocks that have weighed on the production of goods and services. Over the past five years, the pandemic, Russia’s invasion of Ukraine, the president’s tariff and immigration policies, and the conflict with Iran all have hurt growth and boosted inflation.
Growth in real final sales to private domestic purchasers, which some economists say is a better measure of economic health, rose in the first quarter to 2.5 percent from 1.8 percent one quarter earlier.
The economy entered the year with little forward momentum. Growth slid to just 0.5 percent in the last three months of 2025, hobbled by a 43-day government shutdown. The anemic figure marked a sharp decline from the 4.4 percent pace achieved between July and September last year.
But Trump administration officials forecast a rapid turnaround, with Treasury Secretary Scott Bessent predicting a “great year” as the administration’s tax cuts and deregulation initiatives take hold.
The merchandise trade deficit grew to $87.9 billion in March, up more than 5 percent from the previous month, the Census Bureau said Wednesday.
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