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US economic growth rose to a 2 per cent rate in the first quarter as soaring investment in AI infrastructure offset a deceleration in consumer spending.
Private investment soared at an 8.7 per cent annualised rate in the first quarter of 2026 as businesses rushed to buy equipment used in data centres at the heart of the AI boom, according to data from the Bureau of Economic Analysis.
The investments contributed nearly 1.5 percentage points to the overall 2 per cent growth rate, helping push it well above the 0.5 per cent pace in the final three months of 2025.
“This is still an AI‑driven economy and AI is doing a lot of the heavy lifting in keeping US growth afloat,” said Olu Sonola, head of US economics at Fitch Ratings.
The latest earnings reports released this week from the tech behemoths that dominate the investment landscape suggest AI is likely to continue boosting growth in coming quarters as companies continue to borrow heavily to purchase chips and build vast data centres around the US.
The releases showed the big four “hyperscalers” — Amazon, Meta, Microsoft and Alphabet — are together expecting to spend 77 per cent more in capital expenditure than last year’s record $410bn.
In a further sign of how AI spending is rippling across the world’s biggest economy, heavy machinery group Caterpillar said over the past year it has benefited from accelerated order rates as its biggest customers and the data centre industry boosted their expectations for capital spending.
Shares in the company, known for its bright yellow earthmoving equipment, have almost tripled over the past year as its gas engines and turbines, long favoured as backup power solutions by mines and remote grids, became increasingly sought after by US data centres.
“Customers are committing to longer-term orders for some orders well into 2028,” chief executive Joe Creed told analysts on Thursday as the company reported a record backlog of orders and forecast-beating results that sent its shares 10 per cent higher to a new peak and a market value of $410bn.
Michael Pearce, chief US economist at Oxford Economics, said the AI build-out and the impact of the tax cuts contained in US President Donald Trump’s landmark fiscal legislation, the One Big Beautiful Bill, would “continue to drive growth over the rest of the year”.
Still, he added the jump in energy prices triggered by Trump’s Iran war “will take some of the shine off what would otherwise have been a strong year for the economy”.
Growth in US consumer spending, one of the main engines of the nation’s economy, cooled to a 1.6 per cent annual rate in the first quarter from 1.9 per cent in the final three months of 2025.
Trade was a drag on GDP in the first quarter, with imports rising quicker than exports, as businesses continue to grapple with frequent swings in Trump’s tariff policies. The Supreme Court in February ruled many of the duties were illegal.
The GDP report included March, the first month of the Iran war, which has sent fuel prices soaring and affected many US households. Brent crude on Thursday briefly pushed past $126 a barrel to reach its highest level since 2022 as a blockade of the Strait of Hormuz deepens the global energy crisis.
Federal Reserve chair Jay Powell on Wednesday said “recent indicators suggest that economic activity has been expanding at a solid pace”, citing “resilient” consumer spending and the “brisk pace” of business investment.
But he cautioned “the economic outlook remains highly uncertain” and said “the conflict in the Middle East has added to this uncertainty”.
The BEA data showed an important measure of US inflation soared to its highest level in almost three years in March, highlighting the impact of the Iran war on price pressures in the world’s largest economy. Headline personal consumption expenditures inflation, which the Fed uses for its 2 per cent inflation target, rose to 3.5 per cent last month. The rise from 2.8 per cent in February brought the reading to its highest level since May 2023.
The war has sparked a surge in US petrol prices. Figures from AAA show the price of a gallon is now $4.30, up from just below $3 in late February.