Key Highlights

  • Real GDP grew 1.6% annualised in Q1 2026, revised down 0.4 percentage points from the advance estimate.
  • Inventory drawdowns and weaker health care services spending drove the downward revision.
  • Equipment Investment surged 17.2%, reflecting sustained Business Capital-expenditure/">Capital Expenditure appetite.
  • Core PCE Inflation was revised up to 4.4%, keeping Monetary Policy pressure intact.
  • Corporate profit growth collapsed to $40.4 billion from $246.9 billion in Q4 2025.

Growth Holds, But the Revision Matters

The US economy expanded at an annualised 1.6% in Q1 2026, per the Bureau of Economic Analysis second estimate released May 28. This accelerates from Q4 2025's 0.5% but falls short of the 2.0% advance reading. The 0.4 percentage point downward revision traces primarily to two sources: a markdown in private nonfarm inventory investment, led by Manufacturing and retail trade, based on revised Census Bureau data; and weaker consumer spending on health care services following updated Quarterly Services Survey figures.

Real final sales to private domestic purchasers, a measure that strips out volatile inventory and trade effects, grew 2.4%, revised down only marginally. This signals that underlying private Demand, while moderating, has not deteriorated sharply.

Investment: Strong Equipment, Weak Structures

Gross private domestic investment rose 7%, revised down from 8.7%. Equipment investment surged 17.2% and intellectual property products spending grew 11.6%, pointing to active technology and productive-capacity deployment across corporate America. Residential investment fell 6.2% and structures investment declined 5.4%, reflecting the ongoing drag from elevated financing costs on construction activity. The split between technology-led capital spending and real estate-linked investment is a defining feature of this cycle.

Consumer Spending and Trade

Consumer spending rose 1.4%, revised down from 1.6%. Services spending led at 1.8%, while goods grew just 0.4%. Net trade subtracted roughly 1.25 percentage points from GDP. Exports rose 13.1% and imports jumped 21.1%, the latter likely reflecting domestic demand strength and some degree of front-loading ahead of potential Tariff changes. Government spending recovered 4.4% following a 5.6% contraction in Q4 2025, when the federal shutdown suppressed outlays. This rebound was a meaningful Q1 tailwind unlikely to repeat at similar scale.

Inflation Remains Elevated

The PCE price index rose 4.5%, unchanged from the advance estimate. Core PCE was revised up to 4.4%. The gross domestic purchases price index came in at 3.5%. All three readings sit well above the Federal Reserve's 2% target. Real GDI grew just 0.9%, against 1.6% in Q4 2025. The average of real GDP and real GDI, at 1.3%, suggests the economy's true underlying pace is softer than the headline implies.

Corporate Profits Signal Margin Pressure

Profits from current production rose $40.4 billion in Q1, a sharp deceleration from $246.9 billion in Q4 2025. While Q4 was an unusually strong quarter, the scale of the drop points to margin compression entering 2026. For Capital Markets pricing continued Earnings expansion, the shift in profit momentum is a variable worth monitoring.

Outlook

The Q1 revision leaves the US economy in a moderate-growth, high-inflation configuration. Solid equipment investment and a recovering government sector provide support, but softening consumer spending, a wide Trade Deficit, and decelerating corporate profits introduce downside risk to the near-term growth trajectory. The third estimate, due June 25, will incorporate additional source data and may refine the picture further.