Research
April 30, 2026
GDP
U.S. economy grew modestly in Q1, up 2%, despite signs of caution
The U.S. economy expanded at a 2.0% annual rate in the first quarter of 2026, a notable acceleration from the 0.5% pace posted in the fourth quarter of 2025, which was dampened by the federal government shutdown. First-quarter growth was supported by stronger business investment (including inventories), solid service-sector spending, and increased government outlays, reflecting a rebound in federal activity. Investment growth was buoyed by capital spending on equipment and intellectual property products, likely for AI investments.
Total consumer spending and fixed investment, a proxy for underlying domestic demand, rose at a 2.6% annual rate in the first quarter, up from 1.8% in the prior quarter. While this indicates firmer momentum, it still points to only modest growth in domestic demand overall.
At the same time, several areas of weakness remain. Net exports and housing investment weighed on growth, and consumer spending on goods was essentially flat. These trends suggest that households remained somewhat cautious entering the new year, despite the stronger headline GDP figure.
Looking ahead, the National Restaurant Association expects the economy to remain resilient, with real GDP projected to grow 2.3% in 2026. Nonetheless, downside risks persist, including rising energy prices and heightened geopolitical uncertainty stemming from the war in Iran. The coming weeks will be critical in determining how much these headwinds may restrain growth and potentially offset policy-driven tailwinds expected to support economic momentum this year.
A closer look at the data shows that consumer spending remained uneven in the first quarter. Solid growth in services spending (+2.4% at an annual rate) was offset by a slight decline in goods demand (-0.1%). Overall, personal consumption expenditures increased 1.6% in Q1, down from 1.9% in Q4 and marking the weakest pace in four quarters. Personal spending added 1.08 percentage points to headline GDP growth. Notably, spending on foodservices and accommodations subtracted 0.14 percentage points from real GDP, weighing on growth for the second consecutive quarter.
Investment activity was notably strong in Q1, rising 8.7% at an annual rate, driven by sharp gains in equipment (+17.2%) and intellectual property (+13.0%) investment. In contrast, investment in structures (-6.7%) remained a persistent drag, falling for the ninth straight quarter, while residential investment (-8.0%) declined for the fifth consecutive quarter. Businesses also rebuilt inventories for the second quarter in a row after drawing them down over the prior two quarters. In total, gross private domestic investment contributed 1.48 percentage points to topline GDP growth.
Net exports subtracted 1.30 percentage points from real GDP in Q1, as imports (+21.4%) grew more rapidly than exports (+12.9%). Encouragingly, both imports and exports rebounded after contracting in Q4, pointing to a pickup in global trade activity.
Following the federal government shutdown that weighed heavily on growth in Q4, federal government spending rebounded sharply in Q1, increasing 9.3% and adding 0.56 percentage points to GDP. State and local government spending also strengthened, rising 1.6% and contributing an additional 0.17 percentage points to overall real GDP growth.
Total consumer spending and fixed investment, a proxy for underlying domestic demand, rose at a 2.6% annual rate in the first quarter, up from 1.8% in the prior quarter. While this indicates firmer momentum, it still points to only modest growth in domestic demand overall.
At the same time, several areas of weakness remain. Net exports and housing investment weighed on growth, and consumer spending on goods was essentially flat. These trends suggest that households remained somewhat cautious entering the new year, despite the stronger headline GDP figure.
Looking ahead, the National Restaurant Association expects the economy to remain resilient, with real GDP projected to grow 2.3% in 2026. Nonetheless, downside risks persist, including rising energy prices and heightened geopolitical uncertainty stemming from the war in Iran. The coming weeks will be critical in determining how much these headwinds may restrain growth and potentially offset policy-driven tailwinds expected to support economic momentum this year.
A closer look at the data shows that consumer spending remained uneven in the first quarter. Solid growth in services spending (+2.4% at an annual rate) was offset by a slight decline in goods demand (-0.1%). Overall, personal consumption expenditures increased 1.6% in Q1, down from 1.9% in Q4 and marking the weakest pace in four quarters. Personal spending added 1.08 percentage points to headline GDP growth. Notably, spending on foodservices and accommodations subtracted 0.14 percentage points from real GDP, weighing on growth for the second consecutive quarter.
Investment activity was notably strong in Q1, rising 8.7% at an annual rate, driven by sharp gains in equipment (+17.2%) and intellectual property (+13.0%) investment. In contrast, investment in structures (-6.7%) remained a persistent drag, falling for the ninth straight quarter, while residential investment (-8.0%) declined for the fifth consecutive quarter. Businesses also rebuilt inventories for the second quarter in a row after drawing them down over the prior two quarters. In total, gross private domestic investment contributed 1.48 percentage points to topline GDP growth.
Net exports subtracted 1.30 percentage points from real GDP in Q1, as imports (+21.4%) grew more rapidly than exports (+12.9%). Encouragingly, both imports and exports rebounded after contracting in Q4, pointing to a pickup in global trade activity.
Following the federal government shutdown that weighed heavily on growth in Q4, federal government spending rebounded sharply in Q1, increasing 9.3% and adding 0.56 percentage points to GDP. State and local government spending also strengthened, rising 1.6% and contributing an additional 0.17 percentage points to overall real GDP growth.
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