U.S. economic growth rebounded in the first quarter of the year from a sluggish fourth quarter, according to the Commerce Department’s latest estimate.
The Bureau of Economic Analysis (BEA) on Thursday released its advance estimate of first-quarter GDP, which showed the economy grew at an annualized rate of 2% in the three-month period including January, February and March.
That figure was lower than the expectations of economists polled by LSEG, which had estimated 2.3% GDP growth in the first quarter.
It comes after the U.S. economy grew at a roughly 2.1% rate in 2025. The second half of last year saw 4.4% annualized growth in the third quarter and 0.5% growth in the fourth quarter.
FED’S FAVORED INFLATION GAUGE REMAINED ELEVATED IN MARCH
The BEA reported that the main contributors to the rise in GDP in the first quarter were investment, exports, consumer spending and government spending. Imports increased in the first quarter.
Most of the investment was focused on equipment, particularly computers and related equipment amid the artificial intelligence (AI) buildout, as well as intellectual property products, including software and private inventories at retail and wholesale trade firms.
Investment in residential and nonresidential structures declined and partly offset those gains.
GAS PRICES SOAR TO HIGHEST POINT SO FAR DURING UNSETTLED CONFLICT WITH IRAN
The rise in government spending was led by federal employee compensation increasing after the end of the government shutdown that occurred in the fourth quarter, when it declined as federal workers missed paychecks.
Rising consumer spending was attributed mainly to services led by healthcare, including both hospital and nursing home services along with outpatient services.
Real final sales to private domestic purchasers, which is the sum of consumer spending and gross private fixed investment, increased 2.5% in the first quarter after a more modest increase of 1.8% in the fourth quarter.
FEDERAL RESERVE LEAVES INTEREST RATES UNCHANGED AS POWELL’S CHAIRMANSHIP NEARS END
What experts are saying
Michael Pearce, chief U.S. economist at Oxford Economics, said the “core of the economy remained solid in Q1, driven by the AI buildout and the tax cuts beginning to feed through. Those factors will continue to drive growth over the rest of the year, but the jump in energy prices will take some of the shine off what would otherwise have been a strong year for the economy.
“Some of the strength of consumer spending in March is payback for the poor weather at the start of the year. Fiscal stimulus is more than outweighing the drag from higher energy prices for now, but that balance will begin to shift in the months ahead, especially with gas prices still climbing.”
Gregory Daco, chief economist at EY-Parthenon, said that while “AI investment promises to reinforce organic productivity growth in the coming years, its near-term impact through increased capex, infrastructure buildout and energy demand is likely to add to inflationary pressures.”
“Private sector demand showed firmer momentum than in Q4 2025, but it reflects an uncomfortable balance where the three narrow A-pillars of growth — affluent consumers, AI-investment and asset price gains — mask an uneven foundation where headline gains look good, but hide underlying fragilities,” Daco said.
Read the full article here
