The U.S. economy grew at an annual pace of 2% in the first three months of the year. That's an improvement from the previous quarter. But soaring energy prices could put a damper on growth.

SACHA PFEIFFER, HOST:

Big tech companies are pouring money into artificial intelligence. That's propping up the stock market and the nation's GDP. But the overall economy is not looking quite as strong. Many families are struggling with costs, especially as the war in Iran pushes gas prices to the highest level in nearly four years. NPR's Scott Horsley is with us to talk about all of this. Hi, Scott.

SCOTT HORSLEY, BYLINE: Hi, Sacha.

PFEIFFER: Scott, anybody watching a stock ticker today would think the economy is roaring. But when you look at other economic indicators, you get a more mixed message. So what's going on?

HORSLEY: Yeah. The stock market is enjoying a big rally that now jumped nearly 800 points today. A number of big tech companies just reported earnings, and they continue to make these huge investments in data centers and AI. Those investments are also giving a boost to GDP, the economic report card we got from the Commerce Department today, which shows a big jump in business investment in the first three months of the year. Outside that narrow AI boom, though, the economy doesn't look so strong. The housing market is still down in the dumps with mortgage rates climbing again, and consumer spending, which is the biggest driver of the economy, is growing but not as fast as it once was.

OLIVER ALLEN: Even before the energy shock was fully felt, underlying growth was already quite weak.

HORSLEY: Oliver Allen's with Pantheon Macroeconomics. Of course, the energy shock he's talking about is the result of the war with Iran, which has sent energy prices soaring. AAA says the average price of regular gasoline is now $4.30 a gallon. That's up 7 cents just since yesterday.

PFEIFFER: Yeah. And, Scott, if people are paying so much more for gas, then what do we know about whether that means they're having to spend less on everything else?

HORSLEY: Yeah, we're not seeing a whole lot of belt-tightening yet. Personal spending continued to climb in March, even as gas prices were soaring. Allen suspects newly issued tax refunds are helping to cushion the blow of high gas prices for now, but he warns for many families that refund cushion is not going to last very long.

ALLEN: I do think that when you get into kind of May and you get into June, especially if kind of gas prices are still $4-plus per gallon on average at a national level, I think you probably do see some cuts to discretionary spending elsewhere.

HORSLEY: And then that could be a drag on the broader economy. Today, the Commerce Department said the economy grew at an annual rate of 2% in the first three months of the year, which is fine - not great, but not terrible. Allen thinks growth could slow to half that pace, just 1% in the current quarter.

PFEIFFER: So we know prices keep going up. What about workers' paychecks? Are they keeping pace?

HORSLEY: For most of the last three years, average wages were actually going up faster than prices, so workers were seeing real increases in their buying power. But now wage gains are slowing down just as inflation is heating up again. The Commerce Department said today that annual inflation jumped to 3 1/2% in March, and personal spending grew faster than personal income during the month, which means some people are having to borrow money just to stay afloat. Charlie Wise is a senior vice president at the credit reporting firm TransUnion. He says the average credit card user is carrying a balance of about $6,500. For wealthy families, that's very manageable. For others, it could be a problem.

CHARLIE WISE: The consumers at the top, they're comfortable spending. Gas prices go up to 4-, 5-, $6 a gallon, and a lot of high earners just shrug. The consumers at the bottom are saying, I'm going to have to make some trade-offs now. How am I going to make ends meet?

HORSLEY: The number of people falling behind on credit card bills inched up a little bit this year, but TransUnion said the overall delinquency rates have been pretty steady for the last few years. Meanwhile, a lot of those upper-income families, they feel like they can afford to keep spending freely because even if their paychecks haven't gone up a lot, their 401(k) accounts have.

PFEIFFER: That's right. That's NPR's Scott Horsley. Thank you.

HORSLEY: You're welcome.

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