US economy expanded 2.1% in March quarter, government says, upgrading last estimate 

The US economy expanded at an unexpected 2.1 per cent from January through to March, compared to year-earlier levels, the Commerce Department reported on 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 per cent 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 Commerce's previous first-quarter estimate of 1.6 per cent growth.

Business investment surged, probably reflecting an investment boom in artificial intelligence. But consumer spending, which accounts for around 70 per cent of US 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 gasolene 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 US and Iran continue talks towards a resolution of the conflict.

Excluding housing, private investment jumped 10.6 per cent, up from 2.4 per cent in fourth-quarter 2025. In a sign of the AI boom, investment in information-processing equipment jumped at a 39.9 per cent pace as companies scrambled to outfit their data centres. But Michael Reid, head of US economics at RBC Capital Markets, said before Thursday's report came out that "unfortunately, it's not a sustainable path". He expects data centre investment to lose momentum going forward.

Residential investment, weighed down by high interest rates, dropped 7.8 per cent from January through to March, the biggest fall since late 2022 and the fifth straight quarterly decline.

The federal government's spending and investment rose at a 9.4 per cent clip in the first quarter after dropping 16.6 per cent 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 to 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 US 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 to 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 on July 30. 

-AP