The slowdown in the fourth quarter of 2025 was heavily influenced by a 43-day federal government shutdown, the longest in United States (US) history, which disrupted public-sector activity and weighed materially on overall output. During that period, federal spending and investment contracted sharply, falling at an annualised rate of 16.6%. This decline alone cut more than one percentage point from GDP growth, effectively masking underlying activity in other parts of the economy.
With government funding restored in early 2026, that drag reversed. Federal outlays rebounded at a 9.3% annual rate in the first quarter, reflecting the resumption of public services, the payment of delayed wages to federal employees, and the restart of previously paused contracts. Economists describe this as a mechanical “snap-back” rather than a structural improvement, as spending returned to normal levels rather than creating new economic momentum.
At the same time, business investment emerged as a key driver of growth. Gross private domestic investment rose by 8.7%, up from 2.3% in the previous quarter. Much of this increase was concentrated in technology-related sectors, particularly artificial intelligence infrastructure. Spending on data centres, information processing equipment, and software contributed meaningfully to overall GDP, highlighting a divergence between high-growth technology industries and more subdued traditional sectors.
However, the recovery in headline growth has not been evenly distributed. Consumer spending, which accounts for roughly 70% of US economic activity, grew by only 1.6% in the first quarter of 2026, down from 1.9% in the prior quarter. Rising energy costs have played a role, with ongoing tensions in the Middle East, including disruptions linked to the Strait of Hormuz, pushing fuel prices higher. This has reduced household disposable income and tempered demand.
That consumer number will trouble Republican political strategists ahead of the US midterm election scheduled for November of this year.
However, domestic politics notwithstanding, the overall US number is in line with forecasts previously published by The Common Sense that the global economic outlook for 2026 is far stronger than the impression created by a number of other analysts and media platforms.
In April, for example, The Common Sense reported that, “In advanced economies, growth projections remain largely unchanged from the initial estimate of 1.8% the International Monetary Fund (IMF) forecast in January [of 2026]. The US’s GDP growth estimate has been marginally revised lower to 2.3% for 2026, down from the previous 2.4%. The Euro area is expected to see 1.1% GDP growth, down from 1.3%, largely due to its reliance on energy imports… Emerging market economies have been revised down to 3.9% from 4.2%, and emerging Asian economies to 4.9% from 5.0%. India’s positive trajectory continues, with its growth forecast revised upwards to 6.5% from 6.4%. Meanwhile, China’s growth projection has been slightly revised lower to 4.4% from 4.5%.”