The US economy's growth rate was revised downward to 1.6% in the first quarter of 2026, according to the Commerce Department's Bureau of Economic Analysis second estimate released on Thursday, as reported by Reuters. This revision represents a slower pace than initially estimated and came as a surprise to economists who had expected the growth rate to remain unchanged at 2.0%. The downgrade reflects downward revisions to inventory investment and consumer spending, with the economy growing at a 0.5% pace in the fourth quarter before this quarter's acceleration. The downward revision comes as higher gasoline prices and the war with Iran add pressure to household finances and inflation, creating headwinds for economic momentum.
Consumer spending growth was cut to 1.4% from the previously reported 1.6%, contributing significantly to the overall slower growth rate, according to the revised government data reported by Reuters. This decline in consumer activity, which accounts for more than two-thirds of the economy, suggests that household spending failed to provide the expected momentum during the quarter. The weaker consumer spending reflects broader concerns over inflation and household finances, with higher gasoline prices and geopolitical tensions creating additional pressure on consumer purchasing power. However, hefty tax refunds provided some cushion to households from soaring gasoline prices, helping to mitigate the impact of inflation on consumer spending.
Business equipment spending maintained its strong pace at 17.2%, while final sales to private domestic purchasers increased at a 2.4% rate, slightly below the previously estimated 2.5%, according to the revised data reported by Reuters. Corporate profits rose at a $40.4 billion rate in Q1, representing a sharp slowdown from $246.9 billion in Q4, with Middle East conflict and high gasoline prices seen as second-quarter risks. The average of GDP and GDI, referred to as gross domestic output, grew at a 1.3% rate after expanding at a 1.1% pace in the October-December quarter, with overall activity mostly supported by artificial intelligence-related spending. When measured from the income side, the economy grew at a 0.9% rate in the January-March quarter.
The revised GDP growth rate of 1.6% for the first quarter of 2026 reflects broader economic challenges, with both consumer spending and investment activity showing weaker performance than initially estimated, according to the government data reported by Reuters. Economists expect the conflict in the Middle East to weigh on growth from the second quarter, even as hefty tax refunds provide some cushion against soaring gasoline prices. The uneven growth mix, with strong business investment offsetting consumer weakness, indicates that the US economy may be facing headwinds that could impact future quarters if the trends continue. The average of GDP and GDI, referred to as gross domestic output, grew at a 1.3% rate after expanding at a 1.1% pace in the October-December quarter, with overall activity mostly supported by artificial intelligence-related spending.
