The US economy expanded at an annualized rate of 2% in the first quarter of 2025, recovering from the drag caused by the 43-day federal government shutdown last year, according to the Commerce Department. However, the outlook has been clouded by the ongoing conflict with Iran.
GDP Rebounds from Weak Q4
Gross domestic product (GDP), which measures the nation's output of goods and services, rebounded from a weak 0.5% expansion in the final three months of 2025. Federal government spending and investment grew at a 9.3% annual rate in the first quarter, contributing more than half a percentage point to overall growth after subtracting 1.16 percentage points in the fourth quarter of 2025.
Consumer Spending Slows, Business Investment Rises
Consumer spending, which accounts for around 70% of US economic activity, slowed to a 1.6% pace in the first quarter from 1.9% in the previous quarter. Business investment, however, rose at an 8.7% rate, supported by spending linked to artificial intelligence.
Iran Conflict Complicates Outlook
The economic outlook has been complicated by the Iran conflict, which has led to the closure of the Strait of Hormuz — a key shipping route through which around a fifth of the world's oil and liquefied natural gas passes. The disruption has pushed energy prices higher, adding to inflation pressures and weighing on consumers.
The Federal Reserve, while keeping its benchmark interest rate unchanged on Wednesday, cited "a high level of uncertainty" arising from the conflict. Carl Weinberg, chief economist at High Frequency Economics, said forecasting the first-quarter GDP number had become difficult due to the scale of uncertainty.
"The truth is that we do not have any defensible basis for trying to project how these indicators will print," Weinberg wrote in a commentary on Monday. "President Donald Trump's war with Iran has led to a total blockade of the Strait of Hormuz. We do not know how to model the impact of that event, as we have never seen anything quite like it," he added.
First of Three GDP Estimates
Thursday's GDP report was the first of three estimates that will be released by the Commerce Department.
