US economic growth rebounds 2% as consumer spending slows amid Iran war

US gross domestic product (GDP) accelerated 2% in the first three months of 2026, though consumer spending is slowing as the war with Iran continues to impact energy prices. The last GDP reading for the fourth quarter of 2025 showed that US economic growth slowed to a 0.5% pace, largely due to a contraction in government spending after massive layoffs of federal workers last year. The federal government is down 355,000 workers, or 11.8% of the workforce, since October 2024, according to the Bureau of Labor Statistics. But government spending jumped 10% since last quarter, going from a 5.4% contraction last quarter to a 4.4% increase at the start of 2026. Domestic investment also saw 6.4% growth, what is likely attributed to the surge in spending to boost AI and the infrastructure that supports it. The pace that consumer spending is growing has slowed 0.3% to the fourth quarter of 2025. The war with Iran has soured consumer sentiment and increased inflation expectations, from 3.8% in March to 4.7% in April – the largest one-month increase since April 2025, when Donald Trump announced his “liberation day” tariffs . GDP data is released by the commerce department and measures a country’s spending and investment as a way to gauge economic growth. This is the first reading of GDP and is considered an advance estimate. Two further estimates will be released in coming weeks. …