Media: US economic growth rebounds to 2.0% in Q1

U.S. economic growth accelerated in the first quarter, driven by a rebound in government spending following a shutdown, though analysts warn the improvement may be short-lived amid higher energy prices linked to the Iran war and weakening consumer momentum.

Gross domestic product expanded at an annualised rate of 2.0% in the January–March period, according to the Commerce Department’s Bureau of Economic Analysis in its advance estimate released on April 30, Caliber.Az reports, citing Reuters. 

The figure came in below economists’ expectations of 2.3%, with forecasts ranging from a 0.2% contraction to 3.9% growth.

In the previous quarter, growth had slowed sharply to 0.5%, as federal government spending cuts subtracted 1.16 percentage points from output — the largest drag since the first quarter of 1994. Much of the latest quarterly gain reflected a partial reversal of that decline in public expenditure.

Investment linked to artificial intelligence continued to provide support, particularly through spending on equipment and the expansion of data centre infrastructure. However, consumer spending — the largest component of the U.S. economy — lost further momentum, with households under pressure from higher living costs.

Energy prices have risen in recent weeks, with the U.S.-Israel conflict with Iran pushing average petrol prices above $4 per gallon, adding strain to household budgets already affected by persistent inflation.

The broader economic backdrop has also become politically sensitive. Americans have expressed growing dissatisfaction with rising costs, with most disapproving of President Donald Trump’s management of the economy, creating potential risks for Republicans ahead of congressional midterm elections in November.

Financial markets continue to price in the likelihood that the Federal Reserve will keep interest rates unchanged, potentially into 2027, provided labour market conditions do not deteriorate. The central bank left its benchmark rate unchanged on April 29 at 3.50%–3.75%, citing elevated inflation concerns.

Labour market conditions have softened, with employment gains averaging 68,000 jobs per month in the first quarter, compared with just 20,000 a year earlier. Economists attribute the slowdown partly to policy changes affecting trade and immigration, which they say have weighed on both labour demand and supply.

Wage growth has moderated as a result, while tariffs have contributed to higher prices in selected goods categories, though the overall impact on inflation data has remained relatively contained. Analysts say households have increasingly drawn on savings to sustain consumption, a trend they caution is not sustainable over the longer term.

The personal saving rate stood at 4.0% in February, while economists expect recently boosted tax refunds to provide only temporary support to spending before fading later this year.

Looking ahead, economists warn that geopolitical tensions in the Middle East are likely to act as a drag on growth from the second quarter onwards, compounding domestic headwinds from slowing consumption and tighter financial conditions.