U.S. Economy Grows at 2.1% in First Quarter, Driven by Business Investment Despite Consumer Weakness

The U.S. economy expanded at a solid 2.1% annual rate from January through March, the Commerce Department reported Thursday in its final estimate of first-quarter gross domestic product growth. This represented an upgrade from the department's previous estimate of 1.6% growth and marked a significant rebound from the sluggish 0.5% expansion in the final quarter of 2025, when a 43-day federal government shutdown dampened economic activity.

The unexpected strength in GDP was primarily driven by a surge in business investment, reflecting an investment boom in artificial intelligence and data center infrastructure. Excluding housing, private investment jumped 10.6%, up sharply from 2.4% in the fourth quarter of 2025. Investment in information-processing equipment grew at a 39.9% pace as companies rapidly expanded their data center capabilities. However, economists cautioned that this AI-driven investment surge may not be sustainable long-term. A more modest driver of growth came from government spending and investment, which rose 9.4% in the first quarter after dropping 16.6% in the prior quarter due to the federal shutdown.

Consumer spending, which accounts for approximately 70% of U.S. economic activity, presented a concerning downside. Consumer expenditures fell sharply both compared to the fourth quarter of 2025 and from the Commerce Department's previous estimate, suggesting households may be cutting back in response to higher gasoline prices caused by the ongoing war with Iran. Heather Long, chief economist at Navy Federal Credit Union, noted that the downward revision in consumer spending was "unsettling" and called for careful monitoring of spending trends in coming months. Residential investment also weakened, declining 7.8% from January through March—the largest drop since late 2022 and the fifth consecutive quarterly decline—as high interest rates continued to dampen the housing market.

Imports declined more slowly than previously estimated, which contributed significantly to the upward revision of the GDP figure. The import subtraction reduced first-quarter growth by 1.49 percentage points, down from an estimated 2.59 percentage-point drag in the prior calculation. Despite the Iran energy shock affecting oil prices and consumer finances, the broader U.S. economy has demonstrated resilience. The labor market proved particularly robust, with employers adding an average of 188,000 jobs per month from March through May, a marked improvement from the fewer than 10,000 monthly additions recorded throughout 2025 amid uncertainty surrounding President Donald Trump's trade and immigration policies.

Thursday's report marked the Commerce Department's third and final estimate of first-quarter GDP. The first preliminary estimate of second-quarter economic growth is scheduled for release on July 30.