The US economy grew 2% in the opening months of 2026, regaining momentum after a sluggish end to last year and the disruptive 43-day federal government shutdown. But even as the numbers signal recovery, a new threat looms—geopolitical turmoil tied to the Iran conflict is casting a long shadow over the outlook.

Fresh data released Thursday by the Commerce Department shows gross domestic product rebounding from a weak 0.5% pace in the final quarter of 2025, suggesting the economy has regained some footing—though not without cracks beneath the surface.

Government spending fuels rebound as consumers pull back

A major engine behind the rebound was a surge in federal spending and investment, which jumped at a 9.3% annual rate. That surge added more than half a percentage point to overall growth, reversing the drag it imposed just months earlier when it shaved more than a full percentage point off GDP.

But the consumer—the backbone of the U.S. economy—showed signs of fatigue.

Consumer spending, which accounts for roughly 70% of economic activity, slowed to 1.6%, down from 1.9% in the previous quarter. Spending on goods such as food and clothing dipped slightly, while services spending also lost momentum, hinting at growing financial strain among households.

Business investment surges as housing drags behind

In contrast, business investment surged forward, rising at an 8.7% pace—likely fueled by heavy spending in artificial intelligence and emerging technologies.

Strip away housing, and the picture sharpens further: nonresidential investment soared 10.4%, marking its strongest growth in nearly three years.

Yet the housing sector remains a stubborn anchor. Residential investment dropped at an 8% annual rate, marking its fifth consecutive quarterly decline and the steepest fall since late 2022.

Imports surge, cutting into growth

A sharp rise in imports also took a bite out of the headline number. Imports climbed at a striking 21.4% annual rate during the quarter, slicing more than 2.6 percentage points off GDP growth.

The result is what some economists describe as a “split-screen economy,” where strong corporate investment contrasts with weakening consumer resilience.

Heather Long, chief economist at Navy Federal Credit Union, summed it up: companies tied to artificial intelligence are thriving, while many households struggle with rising gas prices and mounting bills.

Underlying strength holds—but uncertainty rises

Beneath the surface, a key measure of the economy’s core strength—excluding volatile components like exports and government spending—grew at a solid 2.5% pace, up from 1.8% in the previous quarter.

Still, that resilience is being tested by global events.

The quarter included roughly one month of escalating conflict involving Iran, which has blocked the Strait of Hormuz—a critical chokepoint through which about 20% of the world’s oil and liquefied natural gas flows. The disruption has pushed energy prices higher, fueling inflation and squeezing consumers.

Federal Reserve flags growing risks

The Federal Reserve, which held interest rates steady on Wednesday, pointed directly to the conflict as a source of “high uncertainty,” underscoring the fragile balance policymakers now face.

Some economists say the situation is so unprecedented that forecasting has become nearly impossible.

Carl Weinberg, chief economist at High Frequency Economics, noted the difficulty bluntly, saying there is no reliable framework to model the economic fallout from a full blockade of the Strait of Hormuz—an event without modern precedent.

What comes next

Thursday’s report marks the first of three GDP estimates from the Commerce Department, meaning revisions are likely in the months ahead.

For now, the US economy grew 2%, a modest but meaningful rebound. Yet like a ship regaining speed in uncertain waters, its course remains vulnerable to forces far beyond its control.