New York, NY – May 1, 2026 – The U.S. economy expanded at a 2.0% annualized pace in the first quarter, rebounding sharply from a weak final quarter of 2025 and demonstrating resilience as military conflict with Iran escalated.
The advance estimate released Thursday by the Commerce Department showed growth picked up from the revised 0.5% pace in the fourth quarter, when a prolonged government shutdown weighed on activity. While the reading fell short of the 2.3% median forecast in a Bloomberg survey of economists, the figures indicated that American consumers and businesses entered the new period of geopolitical tension with solid underlying momentum.
Consumer spending, which accounts for roughly two-thirds of the economy, provided the largest boost. Larger-than-expected tax refunds early in the year helped households absorb the initial rise in gasoline prices as the Iran conflict intensified in March. Business investment also remained robust, particularly in equipment and intellectual property tied to the artificial intelligence boom, rising at an estimated 8.7% pace. A rebound in federal government spending after the shutdown added further support, while net exports subtracted modestly from the total as imports climbed in anticipation of potential supply-chain disruptions.
“The numbers show the economy had decent momentum heading into this period of uncertainty,” said Lydia Boussour, senior U.S. economist at Oxford Economics. “Tax refunds gave consumers a cushion, and AI-related capital spending continues to be a powerful tailwind even as energy costs begin to bite.”
The report arrives against a backdrop of surging oil prices, which have climbed above $100 a barrel amid disruptions tied to the U.S.-Israel military campaign against Iran, now in its ninth week. Higher energy costs are already feeding through to gasoline prices at the pump, posing fresh risks for inflation and consumer confidence in the current quarter. The Federal Reserve has held benchmark interest rates steady in recent meetings, citing the need to monitor both growth and price pressures amid the unfolding Middle East crisis.
The Trump administration’s aggressive sanctions program, known as Operation Economic Fury, has compounded pressure on Tehran by targeting its oil exports, shadow banking networks and nearly $500 million in crypto assets. While the policy aims to weaken the Iranian regime’s ability to fund proxy militias and advance its nuclear program, it has also contributed to tighter global energy supplies in the short term—a trade-off officials have acknowledged.
Economists note that the first-quarter figures likely captured only the early stages of the conflict’s economic impact. Inventory accumulation provided a modest lift, but residential investment remained soft amid higher mortgage rates, and state and local government spending was little changed.
Markets reacted with measured calm to the data. Major stock indexes were little changed in afternoon trading on Wall Street, as investors balanced the solid domestic growth print against rising geopolitical risks. Treasury yields edged modestly higher on expectations that the Fed will remain cautious on rate cuts. The dollar firmed slightly against major currencies.
Still, challenges loom larger in coming months. Prolonged fighting in the Middle East could push oil prices even higher, potentially eroding the purchasing power of American households and forcing businesses to rethink investment plans. Inflation readings have already started to tick up, and several private forecasters have trimmed their full-year 2026 growth projections to the 1.8% to 2.2% range, assuming the conflict does not escalate sharply.
“The economy is starting from a position of strength, but the energy shock is real,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “How long the conflict lasts and how effectively the sanctions bite will determine whether this remains a temporary disruption or something more sustained.”
The report also highlighted ongoing structural shifts. Productivity gains, partly driven by rapid AI adoption across sectors, appear to be helping offset slower labor-force growth. Corporate earnings in technology and defense have held up well, while energy producers are benefiting from higher crude prices. Yet service-sector activity has shown signs of softening as higher fuel costs ripple through transportation and logistics.
For the White House, the data offers a measure of political breathing room. Officials have pointed to the underlying strength of the domestic economy as justification for their hard-line foreign policy. Yet they concede that sustaining expansion while managing elevated energy costs and potential secondary effects from sanctions will be a central economic challenge in the months ahead.
Attention will now turn quickly to second-quarter figures, when the full weight of higher energy prices and any further escalation in the Iran conflict are expected to weigh more heavily on activity. With the ceasefire between the U.S., Israel and Iran holding only tenuously, the durability of this quarter’s momentum remains an open question.
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