US first-quarter GDP growth revised lower to 1.6% pace

WASHINGTON - U.S. economic growth was not as strong as initially thought in the first quarter, and momentum is set to slow this quarter, with the war with Iran stoking inflation and squeezing households’ finances.

Gross domestic product increased at a 1.6% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its second estimate of first-quarter GDP on Thursday. Growth was previously reported to have advanced at a 2.0% pace. Economists polled by Reuters had expected that GDP growth would be unrevised at a 2.0% rate.

The economy grew at a 0.5% pace in the fourth quarter. The downgrade to the first-quarter GDP estimate reflected downward revisions to inventory investment and consumer spending. 

Overall economic activity is mostly being driven by artificial intelligence-related spending. 

Growth in consumer spending, which accounts for more than two-thirds of the economy, was revised down to a 1.4% rate from the previously reported 1.6% pace. Hefty tax refunds provided some cushion to households from soaring gasoline prices.

Business spending on equipment increased at an unrevised 17.2% growth pace. Final sales to private domestic purchasers, which exclude government, trade and inventories, rose at a 2.4% pace. That is a slight downgrade from the previously estimated 2.5% growth rate.

Profits from current production rose at a $40.4 billion rate in the first quarter, a sharp slowdown from the $246.9 billion growth pace in the fourth quarter.

When measured from the income side, the economy grew at a 0.9% rate in the January-March quarter. Gross domestic income increased at a 1.6% pace in the fourth quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, grew at a 1.3% rate. Gross domestic output grew at a 1.1% rate in the October-December quarter.

Economists expect the conflict in the Middle East to weigh on economic growth from the second quarter.

Weekly jobless claims increase marginally amid low layoffs

The number of Americans filing claims for unemployment benefits increased marginally last week amid relatively low layoffs, despite the ongoing war with Iran.

Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 215,000 for the week ended May 23, the Labor Department said on Thursday. Economists polled by Reuters had forecast 211,000 claims for the latest week. Claims have been tucked in a 190,000-230,000 range this year. 

Outside high-profile job cuts by technology firms related to artificial intelligence, layoffs have remained generally low, despite uncertainty, first from last year’s sweeping import tariffs and now the U.S-Israel war with Iran. The conflict has shut off the Strait of Hormuz, boosting commodity prices, including oil and fertilizers, and driving up inflation.

The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 15,000 to a seasonally adjusted 1.786 million during the week ended May 16, the claims report showed. The so-called continuing claims covered the period during which the government surveyed households for May’s unemployment rate. 

The unemployment rate is expected to have held steady at 4.3% in May. Continuing claims have dropped from last year’s lofty levels, though some of the decline is likely due to people exhausting their eligibility for benefits, limited to 26 weeks in most states.

They also do not capture young unemployed Americans, who typically have no or a limited work history, disqualifying them from benefits. College graduates are entering a tough labor market. Some of last year’s graduates remain unemployed.

A Conference Board survey on Tuesday showed households’ perceptions of the labor market were mixed this month, with the share viewing jobs as “plentiful” falling to the lowest level since February 2021. But the share reporting that jobs were “hard to get” hit a seven-month low.

New home sales slump in April amid higher mortgage rates, prices

Sales of new U.S. single-family homes fell in April as the boost from better weather faded and mortgage rates remained elevated.

New home sales dropped 6.2% to a seasonally adjusted annualized rate of 622,000 units last month, the Commerce Department’s Census Bureau said on Thursday. Sales were weighed down by winter storms in January before bouncing back in February and March as temperatures warmed up. 

Sales last month tumbled in the Northeast, South and Midwest, but rose in the West. New home sales, which are counted at the closing of a contract, account for a small share of U.S. home sales and tend to be volatile on a month-to-month basis. They declined 11.3% on a year-over-year basis in April.

The housing market has been constrained by higher mortgage rates. Mortgage rates dropped early this year as mortgage finance agencies Freddie Mac and Fannie Mae expanded purchases of mortgage-backed securities. But they reversed course after the U.S. and Israel began a war with Iran in late February.

The average rate on the popular 30-year fixed-rate mortgage jumped from 5.98% in late February to 6.46% at the start of April, data from Freddie Mac showed. It averaged 6.30% by the end of the month and climbed to 6.51% last week.

With sales slumping, new housing inventory increased to 489,000 units in April from 481,000 units in March.

An oversupply of new homes on the market is also hampering builders’ ability to aggressively break ground on new single-family housing projects. 

Single-family housing starts and building permits dropped in April, the government reported last week. Residential investment, which includes home building and sales via brokers’ commissions, has contracted for five straight quarters.

At April’s sales pace, it would take 9.4 months to clear the supply of new houses on the market, up from 8.7 months in March. The median new house price increased 2.2% to $422,500 in April from a year earlier. Most of the homes sold in April were in the $300,000-$799,999 range.

Copyright Reuters or USA Today Network via Reuters Connect

This story was originally published May 28, 2026 at 10:55 AM.