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.<\/p>\n
The data 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. Economists expect higher energy prices to dampen consumer spending on other goods, weighing on gross domestic product. But the report released on Thursday showed private investment, consumer spending and government expenditures remained strong before the war and in its first weeks.<\/p>\n
\u201cOn net it\u2019s a solid number. Consumer spending has held up,\u201d said Jason Draho, head of asset allocation for the Americas at UBS. He added, though, that the strength \u201ccould be fully offset\u201d if higher energy prices persist for the next six months.<\/p>\n
The effective closure of the Strait of Hormuz has sent oil prices soaring by more than 60 percent. The price of Brent crude, the global benchmark for oil, jumped up to $120 a barrel this week from a prewar level of around $70 a barrel in February. Sharp rises in energy inflation tend to have a dampening effect on economic growth data, which is adjusted for inflation. And such spikes can also reduce household disposable income.<\/p>\n
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.<\/p>\n
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 by 1.6 percent in the first quarter, slightly better than expected.<\/p>\n
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.<\/p>\n
Diane Swonk, the chief economist at KPMG, argues that this period \u201cechoes the disruptions following the pandemic,\u201d of high prices eating into otherwise solid growth and wage gains.<\/p>\n
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.<\/p>\n
There is some limited 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\u2019s 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.<\/p>\n