The US economy demonstrated stronger performance than initially estimated in the first quarter, with gross domestic product rising at an annual rate of 2.1 percent in the first three months of the year. According to the Commerce Department's final estimate released Thursday, this upward revision represents a significant improvement from the previous estimate of 1.6 percent growth. The new figures beat economist expectations of 1.6 percent growth and align more closely with the government's initial estimate of 2.0 percent growth for the first quarter. In the fourth quarter of 2025, real gross domestic product had increased 0.5 percent. The second half of 2025 saw 4.4% annualized growth in the third quarter and 0.5% in the fourth quarter. The Commerce Department's third and final estimate of first-quarter GDP growth 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.
Consumer spending, which accounts for more than two-thirds of the economy, fell to a 0.5% rate from the previously reported 1.4% pace, reflecting downward revisions to outlays on services including financial services and insurance as well as international travel. Part of the downward revisions to financial services was related to a stock market selloff last quarter. However, spending appears to have picked up early in the second quarter, thanks to large tax refunds, which have partially mitigated a surge in gasoline prices stemming from the U.S.-led war with Iran. The average tax refund for the week ending May 8 was $3,276 compared to $2,939 during the week ending May 9, 2025, according to the latest IRS data. As reported by the Commerce Department, 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 Iran energy shock.
The revision was primarily driven by a downward revision to imports, which are a subtraction in GDP calculations, as reported by the Bureau of Economic Analysis. However, the most significant contributor was equipment investment in AI and computers, which helped boost overall GDP figures despite the import decline. Business investment in equipment increased at a 15.8% rate, revised down from the previously estimated 17.2% pace, while outlays on intellectual property products rose at a 13.8% pace, revised up from the previously estimated 11.6% rate. According to EY-Parthenon chief economist Gregory Daco, real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment, rose 1.7% in the first quarter after a downward revision of 0.7 percentage points from the previous estimate. This figure is down from 1.8% in the fourth quarter of 2025 and 2.8% in the third quarter last year. Among the biggest contributors to the increase in real GDP was information services, which includes the burgeoning Artificial Intelligence industry that has powered recent US growth.
When measured from the income side, the economy grew at a 1.2% rate in the January-March quarter, with gross domestic income previously estimated to have increased at a 0.9% rate. It grew at a 1.6% pace in the fourth quarter. The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, grew at a 1.7% rate, an upward revision from the previously estimated 1.3% growth pace. Profits from current production rose at a $74.4 billion rate last quarter, revised higher from the previously reported $40.4 billion pace, though they surged at a $246.9 billion pace in the fourth quarter. The leading industry contributors to the GDP increase were information services, federal government, professional, scientific and technical services, and durable goods manufacturing, while the main offsets came from retail trade, wholesale trade, and finance and insurance.
