The US economy grew at an annualized rate of 2.0 percent in the first quarter, bolstered by significant investments in Artificial Intelligence (AI) and a rebound in government expenditure. This growth rate marked an improvement from the previous quarter, although it fell slightly short of economists’ forecasts.
A key factor behind the expansion was a notable surge in AI-driven business investments, especially in data centers and equipment. Business equipment spending rose sharply at a 17.2 percent rate, while investment in intellectual property products increased by 13 percent, underscoring the growing impact of the technology sector on the broader economy.
Meanwhile, government spending contributed positively, expanding at a 4.4 percent pace as federal outlays rebounded strongly following earlier declines. However, the overall growth was partially dampened by a widening trade deficit, as imports surged in response to tech sector demand, subtracting from GDP gains.
Despite the headline growth figures, consumer spending slowed to a 1.6 percent increase, reflecting pressures from inflation, elevated fuel prices, and rising living costs that weighed on household budgets. Additionally, housing investment continued to decline for the fifth straight quarter, hindered by persistently high mortgage rates.
Economists highlighted that the AI investment boom currently serves as the primary driver of economic growth, even as underlying demand shows signs of weakening. The labor market remained relatively stable with low layoffs, though hiring activity has decelerated amid uncertainties related to tariffs and global geopolitical tensions.
Inflationary pressures continue to challenge the economy, with rising energy costs linked to geopolitical conflicts adding strain to consumers. The Federal Reserve has adopted a cautious stance, maintaining interest rates steady while closely monitoring inflation risks and overall economic uncertainty.
