US GDP undershoots expectations with 2% Q1 growth, core inflation accelerated
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The news: The US economy grew at an annualised rate of 2% during the first three months of the year, coming in below expectations after the extended US government shutdown dampened growth in the tail-end of 2025.
The numbers: The Commerce Department reported on Thursday that US gross domestic product great at 2% during Q1, up from 0.5% in Q4 last year but below the 2.2% forecast in a Bloomberg poll of economists.
Consumer spending increased at a 1.6% rate during the period, while rapid investment in AI boosted a 10.4% surge in business outlays on equipment and structures.
Meanwhile, US headline personal consumption expenditures (PCE) inflation, the Fed’s preferred inflation gauge, surged to its highest level in almost three years during March, rising to 3.5% from 2.8% the month prior.
Core PCE, which excludes changes in food and energy prices, rose to 3.2%, up from 3% in February.
The context: US stocks held steady after the data releases, with the S&P 500 up 0.1% after the opening bell, while the Nasdaq composite held flat.
The data comes after The Fed, the Bank of England and the European Central Bank all decided to hold rates steady as policymakers await further data on the inflationary fallout of the war in the Middle East.
Separate data released by the Labor Department on Thursday showed applications for US unemployment benefits fell to the lowest level since September 1969 last week, a sign that layoffs remain limited across the economy.
