US GDP Slows to 1.6% as Inflation Jumps to 4.5% in Q1 2026

U.S. economy grew at a 1.6% annualized rate in Q1 2026, according to the second estimate from the U.S. Bureau of Economic Analysis. This was lower than the earlier 2.0% estimate but stronger than Q4 2025 growth of 0.5%.

The downgrade mainly came from weaker investment and slower consumer spending. Private inventory investment was revised lower, especially in manufacturing and retail trade sectors, based on updated Census Bureau inventory data.

Consumer spending growth was revised down mainly because of weaker healthcare services demand, including outpatient, hospital, and nursing home services. At the same time, spending on goods improved, led by recreational goods, vehicles, pharmaceuticals, food, and beverages.

Exports, investment, consumer spending, and government spending all contributed positively to GDP growth in Q1. Imports also increased sharply and reduced headline GDP because imports are subtracted in GDP calculations. Charts showed imports contributed around -2.6 percentage points to growth, while exports added nearly +1.4 points.

Real final sales to private domestic purchasers, a key measure of domestic demand, rose 2.4%, slightly below the previous 2.5% estimate. Real gross domestic income increased just 0.9%, compared with 1.6% growth in Q4 2025. The average of real GDP and real GDI was 1.3%.

Inflation pressures remained elevated across the economy. The gross domestic purchases price index rose 3.5% in Q1, slightly revised down from 3.6%. The PCE inflation index stayed at 4.5%, while core PCE inflation excluding food and energy was revised higher to 4.4%.

The price charts showed inflation accelerating sharply into Q1 2026. Core PCE inflation climbed near 4.5%, while the overall PCE index also moved up strongly from late 2025 levels, signaling persistent inflation pressure despite slower economic growth.

The GDP trend chart showed the U.S. economy slowing significantly over recent quarters. GDP growth was around 4.4% in Q3 2025, slowed to 0.5% in Q4 2025, and recovered modestly to 1.6% in Q1 2026.

Corporate profits increased by $40.4 billion in Q1 2026, much weaker than the massive $246.9 billion increase seen in Q4 2025, pointing to slowing business momentum and tighter profit conditions.

The BEA also noted that current dollar GDP increased 5.1% in Q1, compared with the earlier estimate of 5.6%. The next official release, including the third GDP estimate, industries data, corporate profits, state GDP, and state personal income, will be published on June 25, 2026 at 8:30 a.m. EDT.