The U.S. economy expanded at a 2% annual pace from January through March 2026, but the numbers sit on top of a mess of state shutdowns, war, and rising costs that keep hitting ordinary people first. The Commerce Department reported Thursday that gross domestic product rebounded from a 0.5% expansion in the last three months of 2025, after recovering from last fall’s 43-day federal government shutdown.
Who Pays for the “Recovery”
Federal government spending and investment grew at a 9.3% annual rate in the first quarter, adding more than half a percentage point to growth after subtracting 1.16 percentage points in the fourth quarter of 2025. That is the machinery of the state showing up in the GDP ledger as if it were neutral, while the costs of shutdowns and instability are pushed downward onto everyone who depends on wages, services, and basic stability.
Consumer spending, which accounts for 70% of U.S. economic activity, slowed to 1.6% in the first quarter from 1.9% at the end of 2025. Spending on goods, including food and clothing, fell slightly, and spending on services slowed. That is the part of the economy where people actually live, eat, and try to keep their lives together, and it is losing speed while the official numbers still get dressed up as progress.
Business investment, likely driven by spending in artificial intelligence, rose at an 8.7% pace. Heather Long, chief economist at the Navy Federal Credit Union, called it “a split-screen economy,” adding, “Companies and investors involved in AI are on fire. Meanwhile, middle and moderate income households are struggling with high gas prices ... Consumption is slowing as people are struggling to manage all their bills and growing more concerned about the future.’’
The Split-Screen Economy
Residential investment fell at an 8% annual pace, the fifth straight quarterly drop and the biggest since the end of 2022. Excluding housing, nonresidential investment surged 10.4%, the biggest jump in nearly three years. The people who own and direct capital keep finding places to pour money, while housing keeps sliding further out of reach in the official record.
Imports rose at an annual rate of 21.4% from January through March, cutting more than 2.6 percentage points from first-quarter growth. The GDP category that measures underlying strength grew at a 2.5% pace, up from 1.8% in the fourth quarter of 2025. That category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.
War, Energy, and the Price of Control
The first quarter included about a month of the clash in Iran. Iran has blocked the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas passes, driving energy prices higher, fueling inflation and hurting consumers. The Federal Reserve, announcing Wednesday that it was keeping its benchmark interest rate unchanged, cited “a high level of uncertainty” arising from the conflict.
Carl Weinberg, chief economist at High Frequency Economics, wrote Monday that he did not even bother to forecast first-quarter GDP growth. “The truth is that we do not have any defensible basis for trying to project how these indicators will print,” Weinberg wrote. “Trump’s war with Iran has led to a total blockade of the Strait of Hormuz. We do not know how to model the impact of that event, as we have never seen anything quite like it.”
Thursday’s report was the first of three Commerce Department estimates. The official story is a rebound. The lived reality in the numbers is a system where shutdowns, war, energy chokepoints, and corporate winners all land on the backs of people already trying to keep up with bills, gas prices, and shrinking room to breathe.