US GDP (Q1 2026 – final estimate)

Turning 250 and still looking good

Real GDP growth was revised 0.5 percentage points (ppt) higher to 2.1% annualized in Q1 2026, following a lackluster 0.5% increase in Q4 2025. Most of the unusually large upward revision reflected a sharp downward revision to import growth, even as consumer spending growth was revised notably lower.

As such, growth in real final sales to private domestic purchasers — GDP excluding trade, inventories and government spending — was revised 0.7ppt lower to 1.7% annualized and 2.3% year over year (y/y). The latest GDP snapshot reveals softer final demand growth, with consumer spending increasingly supported by a drawdown in savings, increased use of credit and household wealth.

Overall, the US economy remains resilient, but the foundation of growth has become narrower. Interest rate-sensitive sectors continue to struggle under elevated financing costs, while an income squeeze driven by slower wage growth and higher inflation is constraining consumer spending. Business investment has strengthened, supported by AI-related capital spending, but housing activity remains in the doldrums.

Easing Middle East tensions and lower oil prices represent an upside risk to growth and a downside risk to inflation. Even so, the drag from elevated interest rates and higher input and energy costs will likely continue to cap consumer and business spending momentum.

We expect a gradual normalization in energy supply conditions, with oil prices likely to remain above pre-conflict levels through year-end. Against that backdrop, we continue to anticipate a slow-growth, sticky-inflation environment, with real GDP growth of around 1.9% in both 2026 and 2027.

In the details:

• Real gross domestic income (GDI) rose 1.2% annualized in Q1, while gross domestic output (GDO) — the average of GDP and GDI, which is considered a forward-looking gauge of economic growth — grew at a 1.7% annualized pace. Looking at the underlying trends, real GDP advanced 2.7% y/y while GDI rose 2.2% y/y and GDO rose 2.5% y/y.
   
• Real consumer spending growth was revised down 0.9ppt to just 0.5% (annualized), reflecting broadly even gains across services, durable goods and nondurable goods spending.
   
• Business investment rebounded a healthy 10.6% annualized despite a 4.7% plunge in structures investment. Equipment spending surged 15.8%, driven by information processing equipment, while intellectual property products increased 13.8%, further underscoring the concentration of business spending in AI-related activities.
   
• Housing activity remained depressed, with residential investment falling for the fifth consecutive quarter, down 7.8% annualized in Q1. Residential investment is down a staggering 18% since its early 2021 peak.
   
• Net international trade only subtracted 0.4ppt from real GDP growth as imports growth was revised lower by a staggering 9.3ppt to 11.8% annualized. Exports growth was also revised lower to 10.9%.
   
• Government spending added 0.7ppt to real GDP growth, with roughly 0.5ppt reflecting a rebound in federal outlays following the prior quarter’s government shutdown disruptions.
   
• Corporate profits (with inventory valuation and capital consumption adjustments) rose $74.4 billion in the first quarter, with domestic financial profits falling $4 billion, domestic nonfinancial profits surging $143 billion and rest-of-the-world profits falling $65 billion. Profit margins remained at their all-time high of 13.9% of GDP.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.