U.S. Economy Rebounds in Q1
What happened
The U.S. economy is showing signs of a strong rebound after a slowdown in the final quarter of 2025. An RSM GDP Nowcast points to a robust 4.5% growth rate for the first quarter of 2026. The recovery follows a period of softening GDP, where housing's share of the economy fell to 16%, and the labor market showed mixed signals.
Why it matters
- Other forecasts for first-quarter growth, while still positive, are more measured, with the Atlanta Fed's GDPNow model pointing to a 3.1% increase and the New York Fed's nowcast suggesting a 2.4% rise as of late February 2026. - The slowdown in the last quarter of 2025 was exacerbated by a federal government shutdown, which subtracted nearly a full percentage point from GDP growth. - A significant driver of the 2026 rebound is the expected boost from tax cuts, with households anticipated to receive approximately $80 billion in refunds in the first quarter, which is likely to spur consumer spending. - Business investment is another key factor, with annual technology capital expenditures now exceeding $700 billion, largely driven by advancements in artificial intelligence. - The January 2026 jobs report showed the addition of 130,000 nonfarm payrolls and the unemployment rate holding at 4.3%; however, job growth was concentrated in health care, social assistance, and construction, while federal government and financial activities lost jobs. - For Rhode Island, the most recent data through January 2026 shows that year-to-date general revenue collections are slightly ahead of projections, though January saw a shortfall driven by weaker personal income tax withholding. - Despite the positive national outlook, many Rhode Island economic indicators were weak heading into 2026, with a University of Rhode Island economist suggesting the state remained in a recession as of October 2025. - On a national level, while consumer spending remains resilient, it shows a "K-shaped" pattern where higher-income households are seeing more significant gains in spending compared to lower-income households.
Key numbers
- economy is showing signs of a strong rebound after a slowdown in the final quarter of 2025.
- An RSM GDP Nowcast points to a robust 4.5% growth rate for the first quarter of 2026.
- The recovery follows a period of softening GDP, where housing's share of the economy fell to 16%, and the labor market showed mixed signals.
- - Other forecasts for first-quarter growth, while still positive, are more measured, with the Atlanta Fed's GDPNow model pointing to a 3.1% increase and the New York Fed's nowcast suggesting a 2.4% rise as of late February 2026.
What happens next
- A significant driver of the 2026 rebound is the expected boost from tax cuts, with households anticipated to receive approximately $80 billion in refunds in the first quarter, which is likely to spur consumer spending.
Quick answers
What happened in U.S. Economy Rebounds in Q1?
The U.S. economy is showing signs of a strong rebound after a slowdown in the final quarter of 2025. An RSM GDP Nowcast points to a robust 4.5% growth rate for the first quarter of 2026. The recovery follows a period of softening GDP, where housing's share of the economy fell to 16%, and the labor market showed mixed signals.
Why does U.S. Economy Rebounds in Q1 matter?
Other forecasts for first-quarter growth, while still positive, are more measured, with the Atlanta Fed's GDPNow model pointing to a 3.1% increase and the New York Fed's nowcast suggesting a 2.4% rise as of late February 2026. The slowdown in the last quarter of 2025 was exacerbated by a federal government shutdown, which subtracted nearly a full percentage point from GDP growth. A significant driver of the 2026 rebound is the expected boost from tax cuts, with households anticipated to receive approximately $80 billion in refunds in the first quarter, which is likely to spur consumer spending. Business investment is another key factor, with annual technology capital expenditures now exceeding $700 billion, largely driven by advancements in artificial intelligence. The January 2026 jobs report showed the addition of 130,000 nonfarm payrolls and the unemployment rate holding at 4.3%; however, job growth was concentrated in health care, social assistance, and construction, while federal government and financial activities lost jobs. For Rhode Island, the most recent data through January 2026 shows that year-to-date general revenue collections are slightly ahead of projections, though January saw a shortfall driven by weaker personal income tax withholding. Despite the positive national outlook, many Rhode Island economic indicators were weak heading into 2026, with a University of Rhode Island economist suggesting the state remained in a recession as of October 2025. On a national level, while consumer spending remains resilient, it shows a "K-shaped" pattern where higher-income households are seeing more significant gains in spending compared to lower-income households.
