The US economy really is the AI economy now.
In the first quarter, business investments contributed more to the 2% growth in real gross domestic product (GDP) than consumer spending, the traditional driver of economic power, according to data from the Bureau of Economic Analysis.
US consumer spending typically accounts for roughly two-thirds of US gross domestic product (GDP), according to data from the Federal Reserve Bank of St. Louis. In the first quarter, consumer spending made up 68.1% of the economy, to be exact.
Yet, business investment was the primary driver of growth in Q1. While consumer spending slowed, contributing 1.08 percentage points to growth in the first quarter, business investment contributed a greater 1.48 percentage points as the boom in artificial intelligence spending lit a fire under the US economy.
“Tech equipment continues to boost growth,” Jeffrey Roach, chief economist at LPL Financial, said in an email. “The economy has more to go here if the late 90s is any guide.”
Read more: What is GDP, and why is it important to economists and investors?
On Wednesday, Meta (META), Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN) increased capital expenditures projections even further for the “Magnificent Seven” tech leaders.
Going into the quarter, the high end of estimates put the group’s AI spending at around $670 billion this year. As of Wednesday night’s reports, that number is closer to $725 billion. And earnings after the bell on Thursday from Apple (AAPL) could stretch that figure even further.
Consumer spending slowed year over year but remained positive in Q1, indicating that American households remain moderately resilient in the face of surging energy costs driven by the war in Iran. That was largely driven by spending on services, which rose 1.11 percentage points, as spending on goods fell 0.03 percentage points.
“Although US households’ finances are generally intact, spending growth remains modest and increasingly uneven, leaving consumption more exposed to renewed energy price pressures stemming from the Middle East conflict,” Moody’s analysts wrote in a client note in early April.
Rounding out contributions to the 2% growth in GDP were 0.73 percentage points from government spending and investment and a 1.3 percentage-point loss from exports of goods and services.
Inflation also ticked up in March, according to Personal Consumption Expenditures (PCE) index data released Thursday, though the metric remained in line with expectations. Prices rose by 0.7% in March over the previous month and 3.5% from a year ago.
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