US economy likely grew 2.3% in Q1 as investment offset housing drag

The U.S. economy likely expanded at a 2.3% annualized pace in the first quarter of 2026, a significant rebound from the 0.5% growth in the prior quarter, according to the consensus forecast from economists surveyed by FactSet. The expansion is expected to be driven by resilient consumer spending and a notable increase in business investment, even as the housing sector and international trade acted as drags on growth. The official figures are due from the Bureau of Economic Analysis on Thursday.

The pickup in capital spending was a key support, with data showing a 3.3% jump in core capital goods orders in March. However, the strength may be partially offset by higher prices. The pickup in durable goods orders may also “increasingly reflect higher prices for these goods, suggesting real domestic activity is not necessarily as strong,” Veronica Clark, an economist at Citi, said.

Beneath the headline number, the data reveals a mixed picture. Consumer spending is projected to have grown by a solid 1.4%, though this marks a deceleration from the 1.9% pace in the fourth quarter of 2025. In contrast, residential investment is estimated to have declined by 4.8%, a steeper fall than the 1.7% drop in the previous quarter. The wide range of forecasts, including the Atlanta Fed’s GDPNow model projecting just 1.2% growth, highlights the economic cross-currents.

A growth figure significantly above the 2.3% forecast could signal persistent inflation, potentially prompting a more hawkish monetary policy from the Federal Reserve and weighing on equity markets. Conversely, a weaker-than-expected number might ease inflation fears and increase the probability of a policy pivot, which could be bullish for stocks.

Investment and Industrial Demand Provide a Floor

The forecast for stronger business investment is supported by commentary from industrial and technology companies. CTS Corporation (CTS), a supplier of sensors and actuators, reported double-digit expansion in its diversified and industrial end markets, with a book-to-bill ratio of 1.29 in its industrial segment signaling a strong demand pipeline. “Industrial demand is expected to remain strong in 2026, supported by secular tailwinds including automation, connectivity, and digitization,” Pratik Trivedi, CTS Corporation’s chief operating officer, said on the company’s April 29 earnings call.

Similarly, Rogers Corporation (ROG), a maker of engineered materials, saw double-digit growth in its industrial segment, driven by improved manufacturing activity. The company also secured new design wins for its materials used in electric vehicle batteries and automotive radar. “The improved Q1 results and stronger Q2 outlook demonstrate the progress we are making on our commercial and profitability initiatives,” Ali El-Haj, Rogers’ chief executive officer, said.

Housing and Trade Remain Headwinds

The primary factors tempering the growth outlook are a slump in the housing market and a negative contribution from net trade. Goldman Sachs economists estimate residential investment fell 4.8% in the first quarter, as sluggish home construction activity in January and February was not fully offset by a March rebound.

At the same time, higher rates of imports are expected to have outpaced exports, creating a trade deficit that subtracts from the overall GDP calculation. Government spending, which fell 5.6% in the fourth quarter of 2025, is expected to rebound, but the exact magnitude remains uncertain due to partial government funding lapses during the first three months of the year.

This article is for informational purposes only and does not constitute investment advice.