US Economy Showed Solid 2% Growth in Q1 as AI Investment and Business Spending Surge
The U.S. economy expanded at a 2% annualized rate in the first quarter, driven by booming business investment in AI equipment and software. However, inflation remained elevated at 3%+ as the Iran war pushed energy prices higher.
GDP Growth Rebound
Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2026 (January, February, and March), according to the advance estimate released by the U.S. Bureau of Economic Analysis. This marked a sharp acceleration from Q4 2025's 0.5% pace.
AI Capex Driving Growth
Business spending grew by a stunning 10.4% annualized rate in the first quarter, up sharply from 2.4% in the fourth quarter and the highest rate of growth since mid-2023. The increase was solely driven by business investment in equipment and software, indicative of continued investments in AI.
Inflation and Energy Headwinds
The U.S. economy grew at a 2 percent pace in the first three months of the year, as higher investment and a rebound in government spending buoyed business activity while consumers showed signs of fatigue amid rising prices.
Consumer Spending Weakens
Consumer spending, which accounts for about two-thirds of the US economy, grew at an annualized rate of 1.6% in the first quarter, down slightly from the fourth quarter's 1.9%. The increase was exclusively driven by spending on services. However, when taking into account the 4.5% increase in prices during the quarter, real spending was actually down in the beginning of the year, at an adjusted rate of -2.5%.