The American economy extended a streak of resilience and expanded at an annual rate of 2 percent in the first three months of the year, even as global energy prices surged in the first weeks of war with Iran.
The data on gross domestic product from the Commerce Department offered the first official snapshot of how the U.S. economy is broadly faring since the oil shock from war with Iran began to work its way through prices and business decisions. Because G.D.P. is adjusted for inflation, rising fuel costs dampened growth somewhat. But the report released on Thursday showed that private investment, consumer spending and government expenditures remained in solid shape before the war and in its first weeks.
“On net it’s a solid number. Consumer spending has held up,” said Jason Draho, head of asset allocation for the Americas at UBS. He added, though, that the strength “could be fully offset” if higher energy prices persisted for the next six months.
The effective closure of the Strait of Hormuz has sent oil prices soaring more than 60 percent. The price of Brent crude, the global benchmark for oil, jumped to $120 a barrel this week from a prewar level of around $70 a barrel in February.
Contracts for delivery of crude oil in July and August have topped $100 barrel in recent days, heightening fears of a protracted disruption and shortages for petroleum-based products.
Despite consumer sentiment near historical lows and weak hiring appetite among employers, data on consumption, which constitutes roughly 70 percent of gross domestic product, has held up, especially among households in the top third of income. Personal consumption grew 1.6 percent in the first quarter, slightly better than expected.
One particularly positive note was a measure that captures the sum of consumer spending and gross private investment. It rose 2.5 percent in the first quarter, compared with an increase of 1.8 percent at the end of last year. Growth continues to be buoyed by capital expenditures related to the build-out of artificial intelligence infrastructure.
Diane Swonk, the chief economist at KPMG, argues that this period “echoes the disruptions following the pandemic” of high prices eating into otherwise solid growth and wage gains.
The Commerce Department data is only the first estimate for the quarter. Revisions, conducted by civil servants at the agency, can be substantial, particularly in periods of rapid price changes and economic shifts.
There is some evidence that the jump in energy prices is bleeding through to the rest of the economy. Separate data released on Thursday showed that the Personal Consumption Expenditures price index, which is the Federal Reserve’s preferred gauge of inflation, rose 0.7 percent in March and 3.5 percent from a year earlier. It was the fastest year-over-year increase in prices since 2023.
But the “core” measure of consumer prices, which excludes the volatile energy and food categories, rose 0.3 percent in March, a slight slowdown from February. Still, core prices were up 3.2 percent from a year earlier, well above the central bank’s long-run target of 2 percent. Inflation was proving stubborn even before the war.
The Fed held interest rates steady on Wednesday, in a bid to contain any further rise in inflation from the oil price shock and the lingering effects of tariffs that the Trump administration imposed last year on foreign goods. Bond yields have pushed higher, as investors worry that price pressures will erode the future value of some of their assets.
Stock indexes have remained resilient, hovering near record highs. Investors have been more focused on robust profit margins and corporate earnings — which are on track for another quarter of double-digit growth — rather than rising geopolitical risks.
Ultimately, the stability of markets and the broader economy may hinge on whether commercial activity can withstand the mounting pressure of costlier energy and the threat of its filtering through to households and businesses.
The University of Michigan’s U.S. consumer sentiment index slumped to a record low in April, even below recession-era levels. Yet most economists still expect expansion this year, not a downturn.
“The gains mask the underlying discontent and economic anxiety most consumers are feeling,” Ms. Swonk of KPMG said.
One reason for the disconnect between decent growth and dour consumer sentiment is that although G.D.P. is adjusted for inflation when reported, it does not measure the distribution of resources or gains. G.D.P. simply calculates the total exchange of all domestic goods and services. And so, in the roughly $30 trillion U.S. economy, as long as unemployment is low and most people are able to pay most of their bills, economic activity tends to hold up.
Aaron Seyedian is the founder of Well-Paid Maids, a residential cleaning service with branches in several cities that pays above-average hourly wages of $26 plus benefits. His business, he said, is among those that have been strong, at least partly because it serves a wealthier clientele that has been largely unaffected by turmoil over tariffs and war. His company is expanding to Seattle and Boston next month.
“I feel like I’ve heard scares like this before, going back to 2022,” Mr. Seyedian said. “But I’ve just had a record couple of months in terms of revenue.”
The U.S. economy grew at a respectable 2 percent pace last year, supported by consumer spending and business investment, although growth slowed significantly to a 0.5 percent pace in the last three months of 2025, partly because of a record-long government shutdown.
There are still dangers afoot.
The economic research team at Bank of America noted recently that rising energy costs “have likely blunted the long-anticipated boost to consumer spending” stemming from the White House’s tax stimulus agenda. Tax refunds are up $43 billion from last year, but the spike in gas prices has already cost $19 billion, the bank’s researchers noted.
If the standoff in the Middle East does not relent in the coming weeks and months, many energy analysts say, there could be dire effects on the global economy that would boomerang to U.S. shores.
Ben Casselman contributed reporting.
