The U.S. economy grew at a 2% annual rate in the first quarter, even as the war with Iran pushed Brent crude to about $120 a barrel and kept gas prices elevated. That’s the headline number, but the story underneath is changing fast: growth is still there, yet it’s being propped up by households and businesses that are absorbing a much higher energy bill.
Consumer spending rose 1.6% and business investment held up, while government outlays also rebounded after the prior quarter’s shutdown drag. The read-through is simple: the economy entered the conflict on firmer footing than expected, so the first hit from oil has shown up more as a squeeze on purchasing power than as an outright stall.
- GDP grew 2% in January through March, better than the prior quarter’s 0.5% pace, according to the Commerce Department.
- Personal consumption still advanced 1.6%, helped by bigger tax refunds and spending from higher-income households.
- Brent’s move above $100 a barrel has made energy prices the constraint the economy has to clear, not just a temporary market shock.
That shift matters because the Fed now has to look through a growth number that is still decent while inflation pressure is being re-energized by oil. The usual cushion for lower rates is thinner if gasoline stays expensive and consumers keep spending anyway.
The story is no longer whether the first-quarter economy held up. It did. The question now is whether 2% growth can survive if crude stays near $100-plus and that energy shock starts cutting deeper into household budgets and company margins.
