The initial estimate had been 2%, but the first revision cut it to 1.6%. For context, the economy grew just 0.5% in the fourth quarter of 2025 and 4.4% in the third quarter.
The full year 2025 averaged about 2.1% growth.
What pushed the economy forward? Exports, government spending, and consumer spending also helped.
Retail trade, wholesale trade, and finance and insurance all experienced declines that offset those gains. Imports also rose, which subtracts from GDP.
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The main reason for the upward adjustment was business investment in equipment and intellectual property, especially for AI computing, which came in higher than earlier estimates. However, the overall growth picture masks underlying weakness in consumer spending, which has been supported by dwindling savings and increased borrowing rather than by income gains. The finance and insurance sector, along with retail and wholesale trade, contracted in the quarter, while rising imports further weighed on the net export component.
Gregory Daco, chief economist at EY-Parthenon, noted that the data "reveals softer final demand growth, with consumer spending increasingly supported by a drawdown in savings, greater use of credit and household wealth." Daco added: "Overall, the U.S. 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." One bright spot: "Business investment has strengthened, supported by AI-related capital spending, but housing activity remains in the doldrums."
Fifth Third Commercial Bank's chief U.S. economist, Bill Adams, highlighted "dated downward revisions to consumer spending" in the GDP data. Still, he noted the economy is "fast enough to keep up with workforce entrants and hold the unemployment rate steady." He added that "the outlook has improved now that energy is flowing through the Strait of Hormuz again," which helps stabilize oil supplies.
The latest GDP reading underscores a pattern of uneven growth: strong corporate spending on technology has offset drags from consumer weakness and trade, while housing remains stifled by elevated borrowing costs. This divergence reflects the broader challenge of maintaining momentum when household finances are increasingly stretched.
EY-Parthenon anticipates modest GDP expansion and persistent inflation, projecting real GDP growth of approximately 1.9% in both 2026 and 2027. Energy supplies are expected to gradually normalize, but oil prices will likely stay above pre-Iran war levels for the rest of 2026.
