The current US economy is truly an AI economy.
Business investment contributed more to the 2% growth in real gross domestic product (GDP) in the first quarter than consumer spending, the traditional engine of economic strength, according to data from the U.S. Bureau of Economic Analysis.
Consumer spending in the United States typically accounts for about two-thirds of gross domestic product, according to data from the St. Louis Fed. To be precise, personal consumption accounted for 68.1% of the economy in the first quarter.
However, the main driver of growth in the first quarter was business investment. While consumer spending slowed, contributing 1.08 percentage points to growth in the first quarter, business investment’s contribution was much larger, at 1.48 percentage points, as a boom in artificial intelligence spending ignited the U.S. economy.
“High-tech equipment continues to drive growth,” Jeffrey Roach, chief economist at LPL Financial, said in an email. “If the late ’90s are any indicator, the economy needs to make further progress here.”
read more: What is GDP? Why is it important to economists and investors?
On Wednesday, Meta Inc. (META), Microsoft Inc. (MSFT), Alphabet Inc. (GOOG) and Amazon Inc. (AMZN) further raised their capital spending forecasts for the Magnificent Seven technology leaders.
Going into the quarter, the group’s AI spending this year would be around $670 billion at the high end of estimates. As of Wednesday night’s report, that number was approaching $725 billion. And Apple’s (AAPL) gains since Thursday’s bell could make that number even bigger.
Consumer spending slowed year-over-year but remained positive in the first quarter, indicating that U.S. households remain reasonably resilient in the face of rising energy costs due to the Iran war. This was mainly due to a decrease in spending on goods by 0.03 percentage points, while spending on services increased by 1.11 percentage points.
“While U.S. household finances remain generally healthy, spending growth remains slow and increasingly uneven, and consumption is further exposed to new energy price pressures stemming from conflicts in the Middle East,” Moody’s analysts said in a note to clients in early April.
Adding up their contributions to 2% GDP growth, government spending and investment decreased by 0.73 percentage points and exports of goods and services decreased by 1.3 percentage points.
Personal consumption expenditure (PCE) index data released on Thursday showed that inflation also rose in March, but the indicator remained in line with expectations. Prices in March rose 0.7% from the previous month and 3.5% from the same month last year.
