The U.S. economy expanded at an annual rate of 2% in the first three months of 2026, supported by an 8.7% annualized jump in business investment, the Commerce Department reported. Economists polled by FactSet had projected gross domestic product to rise at an annualized rate of 2.2% for the January to March quarter.

The first-quarter reading marked an acceleration from the fourth quarter of 2025, when the economy grew at an annual rate of 0.5% after a government shutdown. For all of 2025, U.S. GDP increased 2.1% on an annual basis, according to the Commerce Department.

Consumer spending slowed from 1.9% in the fourth quarter of 2025 to 1.6% in the first quarter of 2026. According to recent Bank of America data, most of the growth in March 2026 was driven by higher-income households. The Personal Consumption Expenditures Price Index increased at a 3.2% annual rate in the first quarter of 2026.

Energy costs climbed during the quarter. The average cost for a gallon of gasoline reached $4.30, the highest level since July 2022. Brent crude oil topped $126 per barrel, a wartime high. The war in Iran has slowed traffic in the Strait of Hormuz.

"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," said Michael Pearce, chief U.S. economist with Oxford Economics.

In a forecast last week, EY-Parthenon chief economist Gregory Daco projected that the Iran war could reduce GDP by 0.3 percentage points in 2026. Daco estimated that GDP will grow by 1.8% for the entire year 2026. ANZ analysts described cost-push inflation in energy-intensive sectors as negative for growth.