US economy expanded at solid 2.1% pace in January-March, government
says, upgrading last estimate
[June 26, 2026] By
PAUL WISEMAN
WASHINGTON (AP) — The U.S. economy expanded at a solid and unexpected
2.1% annual pace from January through March, the Commerce Department
reported Thursday in its final estimate of first-quarter growth.
The growth in gross domestic product — the nation’s output of goods and
services — marked a rebound from a sluggish 0.5% in the last three
months of 2025 when a 43-day federal government shutdown weighed on the
economy. Thursday’s numbers were an upgrade from of Commerce’s previous
first-quarter estimate of 1.6% growth.
Business investment surged, probably reflecting an investment boom in
artificial intelligence. But consumer spending, which accounts for
around 70% of U.S. economic activity, fell sharply from fourth-quarter
2025 and from Commerce’s previous estimate in a sign that consumers may
be cutting back in the face of higher gasoline prices caused by the war
with Iran.
“It was unsettling to see consumer spending revised even lower,” Heather
Long, chief economist at Navy Federal Credit Union, said 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.
Excluding housing, private investment jumped 10.6%, up from 2.4% in
fourth-quarter 2025. In a sign of the AI boom, investment in
information-processing equipment jumped at a 39.9% pace as companies
scrambled to outfit their data centers. But Michael Reid, head of U.S.
economics at RBC Capital Markets, said before Thursday’s report came out
that “unfortunately, it’s not a sustainable path.’’ He expects data
center investment to lose momentum going forward.
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 Residential investment, weighed down
by high interest rates, dropped 7.8% from January through March,
biggest fall since late 2022 and the fifth straight quarterly
decline.
The federal government's spending and investment rose at a 9.4% clip
in the first quarter after dropping 16.6% in October-December 2025
largely because of the government shutdown.
Imports, which are subtracted from GDP, grew at a slower pace than
last estimated from January through March. They still subtracted
1.49 percentage points from first-quarter growth, but that was down
from a 2.59 percentage-point hit in the previous estimate and was a
major factor in Thursday's upgrade.
The U.S. economy — the world’s biggest — has continued to chug along
despite the Iran energy shock. The American job market has proven
especially resilient. Employers added an average 188,000 jobs a
month from March through May after adding fewer than 10,000 a month
in 2025 amid uncertainty over President Donald Trump’s trade and
immigration policies.
Thursday’s report was the Commerce Department’s third and final
estimate of first-quarter GDP growth. The first look at
second-quarter economic growth is due July 30.
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