U.S. Private Sector GDP Growth Slows to 1% in Q1 as Public Spending Surges, Paulsen Warns of Stock Market Turbulence

According to economist Jim Paulsen, former chief investment officer at Leuthold Group, the U.S. private sector's real GDP growth slowed to just 1% year-over-year in the first quarter of 2026, while public sector growth reached 4%, signaling a concerning economic imbalance. Writing on Substack, Paulsen noted that historically, when public sector contributions to GDP growth exceed private sector contributions, stock market performance tends to be weak. He cited past periods such as the post-2008 financial crisis years and the COVID-19 pandemic as examples when such patterns emerged. Paulsen expressed concern that the first-quarter decline in the private-to-public sector GDP ratio may mark the beginning of a sustained contraction, potentially due to rising interest rates, elevated energy prices, and geopolitical factors including military spending. "This could bring turbulence to the stock market," Paulsen warned.
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