U.S. GDP Up 2% in Q1 on AI Investment and Government Spending

The Commerce Department’s initial estimate shows U.S. gross domestic product rose at a 2.0% annual rate in the first quarter of 2026, reversing a 0.5% expansion in the final quarter of 2025. The report covers January through March and is the first of three estimates that may be revised.

Government spending and investment grew at a 9.3% annual rate in Q1, adding more than 0.5 percentage point to overall GDP after a 43-day federal shutdown slowed activity late last year. Federal outlays increased and supported the rebound at the start of 2026.

Business investment climbed at an 8.7% annual rate, with companies directing large sums into data centers and other projects tied to artificial intelligence and data infrastructure. Consumer spending, which accounts for about 70% of the economy, rose 1.6% in the quarter, slower than the 1.9% pace recorded last year.

Residential investment fell at an 8.0% annual rate for the fifth straight quarter, continuing to weigh on growth. Trade also restrained overall GDP: imports jumped at a 21.4% annual rate, subtracting more than 2.6 percentage points from first-quarter growth as demand for foreign goods outpaced exports.

The Q1 estimate covers a period that included roughly a month of fighting in Iran. Iran’s blockade of the Strait of Hormuz, a key route for about one-fifth of global oil and gas flows, pushed energy prices higher and added to inflation pressures affecting household budgets.

Federal Reserve Chair Jerome Powell, speaking at his final press conference before leaving office, described the economy as “quite resilient” and pointed to steady consumer spending and strong data center construction. The Fed kept its benchmark federal funds rate at a target range of 3.50% to 3.75%, citing a high level of uncertainty related to the conflict in the Middle East.

The International Monetary Fund, in its April review of the U.S. economy, projected GDP growth of 2.4% for 2026 and cautioned against cutting interest rates unless the labor market weakens while inflation declines. The IMF flagged fiscal risks: it expects the general government deficit to remain near 7% to 7.5% of GDP and warned that public debt could rise above 140% of GDP by 2031. The fund also noted that tariff-driven price increases continue to feed into core inflation and that trade uncertainty may affect activity at home and abroad.

The Commerce Department will publish two more GDP estimates before the final reading. The initial figure highlights stronger corporate capital spending and higher government outlays alongside slower consumer growth, continued weakness in residential investment and a widening import bill.