NEW YORK: Government data released this week painted a lacklustre picture of the US economy prior to the Middle East war, downgrading fourth-quarter growth and showing an unexpected decline in US personal income in February.
Most of the day’s reports cover the period before the US-Israeli war on Iran that kicked off February 28. The conflict has seen a surge in crude prices that is straining consumers, pressuring President Donald Trump’s administration and dimming the odds for Federal Reserve interest rate cuts.
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Analysts expected Friday’s consumer price index figures for March to reveal more of the war’s effects.
US economic growth in the final quarter of 2025 came in at 0.5 percent, down from a prior estimate of 0.7 percent, according to Commerce Department data.
The report puts GDP for all of 2025 at 2.1 percent.
Though a “solid” level of annual growth, 2025 will “likely be remembered as the year that ‘could have been,’” said a note from EY-Parthenon Chief Economist Gregory Daco.
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“A rare confluence of supply shocks—tariffs, tighter immigration and elevated policy uncertainty—constrained activity, leaving growth below what strong organic productivity gains and rapid AI adoption would have otherwise supported.”
Daco said the outlook for 2026 was “even less favourable” due to increased inflation risk from the war.
Personal income dipped 0.1 percent in February from January, according to Commerce Department figures. Analysts had expected growth of 0.5 percent.
The estimate for personal consumption expenditures, the Fed’s preferred benchmark for measuring inflation, climbed 0.5 percent from the prior month, in line with expectations.
From the same month a year ago, the PCE price index rose 2.8 percent. That’s the same level as in the year-over-year January comparison.
Excluding food and energy components, inflation rose 3.0 percent from a year ago, down from 3.1 percent last month.
“Consumer inflation was firming even prior to the outbreak of war in the Middle East, and it is primed to jump sharply higher in March,” said Nationwide Chief Economist Kathy Bostjancic.
Even if the truce announced Tuesday night holds and the Strait of Hormuz is reopened, “it would take months for oil, gasoline, diesel and other commodity supplies to snap back to pre-war levels,” Bostjancic said.
“The elevated energy and commodity prices will weigh on consumer discretionary spending and lift inflation, especially in the near-term.”
In other data released this week, jobless claims for the week ending April 4 rose 16,000 to 219,000.
Oxford Economics said in a note it is too soon to say that the Iran war has had “a notable impact on the labour market.”
“Initial claims rose more than expected in the week ending April 4, but we don’t think an upside surprise in one week is sending a signal that labor market conditions are softening.”
