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The Commerce Department’s latest revision shows the U.S. economy recovering from a weak end to 2025, as growth for the first quarter was upgraded from an earlier estimate. The change highlights two contrasting forces: a surge in corporate investment—largely tied to data centers and artificial intelligence—and a noticeable pullback in household spending.
The upward revision follows a dismal 0.5% pace in the final quarter of 2025, when a 43-day federal shutdown dented activity. Officials said the new figures replace the department’s prior first-quarter estimate of 1.6% growth and offer a fuller view of how different sectors performed in the first three months of the year.
Business investment vs. consumer wallets
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Companies ramped up capital spending sharply after a slow stretch at the end of 2025. Excluding housing, private investment climbed at a robust rate, with businesses plowing money into servers and other technology to support AI projects.
At the same time, consumer spending—which accounts for roughly 70% of U.S. economic activity—slowed noticeably from the fourth quarter. Higher gasoline prices tied to disruptions in the Middle East are cited as one factor weighing on household purchases, raising questions about how sustained the recovery will be for everyday Americans.
Economists cautioned that the investment surge may not persist. Analysts at RBC Capital Markets warned that the big push into data center hardware looks likely to cool once companies finish initial buildouts.
Key takeaways
- Private investment (ex-housing): Jumped significantly, reflecting technology and data-center spending.
- Information-processing equipment: Investment rose at an unusually fast pace, consistent with an AI-driven spending wave.
- Residential investment: Fell 7.8% in the quarter—the largest drop since late 2022 and the fifth straight quarterly decline—burdened by high mortgage rates.
- Federal spending: Rebounded, increasing about 9.4% after a sharp fall tied to the shutdown at the end of 2025.
- Imports: Continued to subtract from growth, but by less than previously estimated—subtracting 1.49 percentage points versus an earlier 2.59-point hit.
What this means for jobs and households
The labor market has remained resilient even as consumer activity cooled. Employers averaged roughly 188,000 new hires per month from March through May, a marked improvement after hiring almost stalled in 2025 amid policy uncertainty.
Still, analysts say the sharper-than-expected dip in household spending is the element to watch closely. If energy prices stay high or credit conditions remain tight, consumers may keep trimming purchases, which would slow overall growth despite corporate investment.
Heather Long of Navy Federal Credit Union urged caution, noting that while spending could rebound in the second quarter, the recent months have been challenging for many households and the pace of relief depends in part on geopolitical negotiations underway.
Short-term outlook
This release is the Commerce Department’s third and final revision for the first quarter; the agency will publish its initial estimate for second-quarter growth on July 30. Markets and policymakers will be watching whether the AI-led capital spending continues to offset weaker consumer demand or whether the economy shifts gear as the year progresses.
