The Commerce Department reported that U.S. gross domestic product expanded at a 2.1% annual rate during the first quarter, representing an upgrade from its previously reported estimate of 1.6% growth. The stronger-than-anticipated expansion marked a recovery from the sluggish 0.5% growth recorded in the final three months of 2025, when a 43-day federal government shutdown dampened economic activity.
Business investment emerged as a key driver of first-quarter growth, surging notably as companies invested heavily in artificial intelligence infrastructure. Private investment excluding housing climbed 10.6%, compared with 2.4% in the prior quarter. Investment in information-processing equipment accelerated at a 39.9% pace as firms expanded their data center capacity. However, consumer spending, which typically represents approximately 70% of total U.S. economic activity, contracted sharply from the fourth quarter and fell below the Commerce Department’s previous forecast. Economists attributed the pullback to elevated gasoline prices stemming from ongoing conflict with Iran. Some analysts cautioned that while consumer spending may recover in subsequent quarters, the trend warranted careful monitoring given the economic pressures households have faced.
Other components of economic activity showed mixed results. Residential investment declined 7.8% during the quarter, marking the largest drop since late 2022 and extending a streak of five consecutive quarterly declines in this category, largely driven by persistently high interest rates. Federal government spending and investment rebounded at a 9.4% pace after falling 16.6% in October-December 2025 due to the shutdown. Import growth slowed more than previously estimated, which contributed significantly to the upward revision of first-quarter GDP.
The labor market demonstrated resilience despite economic headwinds. Employers added an average of 188,000 jobs monthly from March through May, a notable acceleration compared with fewer than 10,000 jobs added per month during 2025, when uncertainty surrounding trade and immigration policies had weighed on hiring. The Commerce Department’s report marked its third and final estimate for first-quarter growth, with preliminary second-quarter figures scheduled for release later in July.
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