U.S. GDP Revised Down to 1.6% in Q1 2026 as Inventories and Services Weigh

The U.S. economy grew at a 1.6% annualized rate in the first three months of 2026, slower than previously reported, as weaker inventory investment and softer consumer spending trimmed the government’s earlier estimate.

The Bureau of Economic Analysis said Thursday in its second estimate for first-quarter gross domestic product that growth was revised down from the 2.0% pace reported in the advance estimate. BEA publishes GDP in several rounds as more complete data becomes available, and revisions between estimates are routine.

Even with the downgrade, first-quarter growth was stronger than the 0.5% annualized increase recorded in the fourth quarter of 2025. According to the Bureau of Economic Analysis, exports, investment, consumer spending and government spending all contributed to growth in the January-through-March period. Imports also increased, which counts as a drag on GDP.

The revision was driven primarily by investment and consumer spending. Within investment, BEA said the change mainly reflected weaker private nonfarm inventory investment, especially in manufacturing and retail trade, based on revised Census Bureau inventory data. On the consumer side, the downward revision was concentrated in services spending, particularly health care spending on outpatient services, hospitals and nursing homes. That was partly offset by an upward revision to goods spending, including recreational goods and vehicles, pharmaceuticals, and food and beverages.

The report also showed inflation remained elevated during the quarter. The personal consumption expenditures price index, one of the Federal Reserve’s key inflation gauges, rose at a 4.5% annualized rate in the first quarter, while core PCE, which excludes food and energy, increased 4.4%. The price index for gross domestic purchases rose 3.5%. Those readings matter because the Fed uses PCE inflation as a central measure of price pressures; at its April 29 meeting, the central bank held its benchmark federal funds target range at 3.50% to 3.75% and said inflation remained elevated.

Corporate profits grew much more slowly than in the prior quarter, another sign of a less forceful start to the year. Profits from current production increased $40.4 billion in the first quarter, according to the Bureau of Economic Analysis, down sharply from a $246.9 billion increase in the fourth quarter of 2025.

Thursday’s report underscores a mixed picture for the economy: output continued to expand and at a faster pace than late last year, but not as strongly as first thought, while inflation stayed high. The second estimate suggests businesses added less to stockpiles than initially believed and consumers, particularly in services, spent less than earlier data indicated.

BEA also said refunds tied to the Supreme Court’s February 2026 ruling on certain tariffs imposed under the International Emergency Economic Powers Act are treated as capital transfers and do not affect first-quarter GDP.