US economy expanded at solid 2.1% pace in January-March, government says, upgrading last estimate

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.

Excluding housing, private investment jumped 10.6%, up from 2.4% in fourth-quarter 2025. But 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.

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.