WASHINGTON - The US economy expanded at a slower pace than initially estimated in the first quarter, new government data shows, while a key inflation gauge hit a three-year high due to fallout from the Middle East conflict.
Gross domestic product rose at an annual rate of 1.6% in the first three months of this year, the Commerce Department reported. That's down from an earlier estimate of 2.0%. The revision reflects slower consumer spending and a drop in business inventories.
Meanwhile, the Federal Reserve's preferred inflation measure - the personal consumption expenditures price index - rose 3.8% from a year ago, up from 3.5% in March. That's the highest annual rate since 2023.
Economists warn American households are feeling the squeeze. Consumer spending accounts for 70% of the US economy. Higher gasoline prices, fueled by US-Israeli strikes targeting Iran, have pushed energy costs sharply higher. The crisis has effectively blocked the Strait of Hormuz, a key waterway for global oil and gas supplies.
US consumers spent $28.8 billion more on gasoline in April compared to the same month last year. Disposable personal income fell 0.1% in April, while personal consumption expenditures rose 0.5%.
New home sales also declined in April, falling 6.2% from March to a seasonally-adjusted annual rate of 622,000. The median sales price of new homes rose 8.0% from March, and the 30-year fixed-rate mortgage averaged 6.5% as of late May.
Despite the headwinds, first-quarter growth accelerated from a 0.5% rate in the fourth quarter of 2025, driven by increases in government spending and exports.