WASHINGTON — The U.S. economy posted stronger-than-expected growth in the first quarter of the year, expanding at a 2.1% annual rate between January and March, according to the Commerce Department’s final estimate released Thursday.
That figure represents a significant turnaround from the sluggish 0.5% growth recorded in the final three months of 2025, a period dragged down by a 43-day federal government shutdown. Thursday’s final tally also topped the Commerce Department’s earlier first-quarter estimate of 1.6%.
Business investment was a bright spot, surging sharply — a trend analysts say is likely tied to a boom in artificial intelligence spending. However, consumer spending, which drives roughly 70% of all U.S. economic activity, fell sharply compared to the fourth quarter of 2025 and also came in lower than the department’s previous estimate. Analysts say consumers may be pulling back due to rising gasoline prices stemming from the ongoing conflict with Iran.
Heather Long, chief economist at Navy Federal Credit Union, expressed concern about the revised consumer numbers. “It was unsettling to see consumer spending revised even lower,” she wrote in a commentary. “Spending is likely to tick up in (the second quarter), but it’s worth watching carefully… It’s been a tough few months for American consumers, but most have been able to make it through. The question is how much relief is coming” as the U.S. and Iran continue talks toward a resolution of the conflict.
Private investment, excluding housing, jumped 10.6%, a marked improvement from 2.4% in the fourth quarter of 2025. Investment in information-processing equipment — a reflection of the AI buildout — soared at a 39.9% pace as businesses rushed to expand their data centers. Still, Michael Reid, head of U.S. economics at RBC Capital Markets, cautioned ahead of Thursday’s release that “unfortunately, it’s not a sustainable path,” predicting that data center investment will slow in the months ahead.
The housing sector continued to struggle under the weight of elevated interest rates. Residential investment fell 7.8% in the first quarter — the steepest drop since late 2022 and the fifth consecutive quarterly decline.
Federal government spending and investment climbed at a 9.4% pace in the first quarter, bouncing back after a 16.6% drop in the previous quarter that was largely attributed to the government shutdown.
Imports, which are counted as a subtraction in GDP calculations, grew more slowly than previously estimated during the first quarter — one of the key reasons the overall growth figure was revised upward.
Despite the energy shock caused by the conflict with Iran, the broader U.S. economy — the largest in the world — has continued to hold steady. The job market in particular has shown resilience, with employers adding an average of 188,000 jobs per month from March through May, a sharp improvement from fewer than 10,000 monthly additions in 2025 when uncertainty surrounding President Donald Trump’s trade and immigration policies weighed on hiring.
Thursday’s report marked the third and final government estimate of first-quarter GDP growth. The first look at how the economy performed in the second quarter is expected on July 30.
