The Bureau of Economic Analysis announced today that seasonally adjusted US real GDP grew at an annualized rate of 2% in the first quarter. That’s below the historical growth rate of 3.1% and below some analysts’ expectations for Q1 numbers. The new BEA report also revised down the annual growth rate for Q4. The latter was reported to be 1.4% but is now estimated at only 0.5%.
Real GDP growth by quarter at annual rate, 1947:Q2-2026:Q1, historical average since 1947 (3.1%) in blue. Calculated as 400 times the difference in the natural log of real GDP from the previous quarter.
The new numbers bring the Econbrowser recession index to 7.7%. This increase largely reflects the fact that Q4 is now reported to be weak. Our practice has always been to wait one quarter for data updates and better pattern recognition before announcing an index. A review of Q4 GDP numbers shows one of the reasons why this is desirable.
An index of economic recession based on GDP. The projected value for each day is based only on GDP numbers that were publicly available from one quarter after the date shown, with 2025:Q4 being the last date shown on the graph. Shaded regions represent NBER recession days, which are days that were not used in any way in the construction of the index.
Non-residential fixed investment, in part boosted by the use of AI infrastructure, appeared to be the main contributor to Q1 growth. But many of these components were imported, so the net contribution to US GDP – which measures the production of new goods in the United States – was largely muted. Consumption was weaker than it has been recently.
Some analysts have questioned whether the rise in oil prices would have contributed to the slowdown in spending. Consumer sentiment, which tends to move inversely with fuel prices, was very low, although this started before the recent oil price hike.
Spending declines following oil shocks have historically been led by the auto sector. Car sales so far seem to have stagnated.
Personal consumption expenditures on automobiles and parts, 1986:Q1-2026:Q1. Source: FRED.
The price of oil today is still below where it was four years ago. That may be part of why the recent rise in oil prices hasn’t affected spending on cars and other goods more. But I am surprised that the price of oil is not high right now. The IEA estimates that the conflict in Iran has reduced global oil production by 10 million barrels per day, or about 10% of global production. We have not seen a significant drop in oil consumption during this period. Consumers are protected from the full impact of commodity sales in the form of falling oil prices stored on land and at sea.
Commodity sales are how markets should respond to temporary supply disruptions to reduce the economic impact. Wall Street appears to be counting on a quick resolution to the dispute. I hope the optimists are right. But I see significant opportunities that are not. If the world needs to survive on 10% less oil for an extended period of time, we are in for a very serious economic downturn. The current stock market high seems to be betting that there isn’t much risk of that. I think the market may be wrong.
I’m turning our Little Econ Watcher’s face into worry until we get better news from the Middle East.
