Arizona Tribune - US first-quarter growth rebounds less than expected as inflation surges

While the world's biggest economy appears to remain resilient, some analysts warn of reliance on an AI investment boom, while consumers are showing fatigue that could intensify as the energy shock from the war worsens.

Gross domestic product rose at an annual rate of 2.0 percent in the January to March period, according to an advance estimate released by the Commerce Department.

This was significantly higher than the 0.5 percent figure in the final three months of 2025, but still below the 2.2 percent expansion that analysts predicted.

An uptick in government spending and investment boosted the GDP figure, but this was "partly offset by a deceleration in consumer spending," the department said.

A separate Commerce Department report on Thursday showed that the Federal Reserve's preferred inflation gauge surged in March as energy costs skyrocketed over the war.

The personal consumption expenditures (PCE) price index jumped 3.5 percent from a year ago, up notably from 2.8 percent in February.

Excluding food and energy, the PCE price index was up 3.2 percent from a year prior.

Energy costs have soared since US-Israeli strikes targeting Iran on February 28 triggered Tehran's retaliation in virtually blocking off the Strait of Hormuz.

The waterway is a key route of transit for energy and fertilizers, sending global costs up.

This has caused prices at US gasoline stations to spike, with the average price of a gallon (3.78 liters) of regular gasoline hitting $4.30 according to data from the AAA motor club.

Steeper costs are expected to weigh on households and create steep political risks for US President Donald Trump's Republican Party heading into the November midterm elections.

"The big picture is that growth already was sluggish ahead of the energy shock, with the economy's underlying momentum anemic outside the continued surge in AI-related capital expenditure," said Oliver Allen, senior US economist at Pantheon Macroeconomics.

While there was a jump in government spending, boosting GDP growth, this was "entirely due to a sharp rebound in federal government spending following the shutdown in the fourth quarter," he said.

Allen added that consumer spending in the first three months this year was also weaker than its average pace over the past four quarters.

"The subdued labor market, depressed confidence, meager real income growth, and exhaustion of pandemic-era excess savings all are starting to weigh on households," he warned.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, expects the US economy can withstand short-term global economic shocks.

"But we are becoming more concerned that the global economy is going to have a much more difficult time weathering the upcoming storm," Zaccarelli added.

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