RBC Chief Economist Frances Donald discusses her April 2026 forecast for US GDP and inflation risks, labor market health and consumer spending patterns contributing to a bifurcated economy in ‘Making Money.’
US economic growth rebounded in the first quarter of the year from a sluggish fourth quarter, according to the latest estimate from the Commerce Department.
The Bureau of Economic Analysis (BEA) on Thursday released its preliminary estimates first quarter GDPwhich shows that the economy grew at an annual rate of 2% in the three-month period including January, February and March.
That number was lower than the expectations of economists polled by LSEG, which had estimated GDP growth at 2.3% in the first quarter.
It comes after the US economy is expected to grow at an estimated rate of 2.1% in 2025. The second half of last year grew by 4.4% annually in the third quarter and 0.5% in the fourth quarter.
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The BEA reported that the main contributors to GDP growth in the first quarter were investment, exports, consumer spending and government spending. Imports rose in the first quarter.
Most of the investment was focused on equipment, especially computers and related equipment during this period artificial intelligence (AI) buildingout, and intellectual property products, including software and private inventory for wholesale and retail companies.
Investment in residential and non-residential buildings declined and partially offset those gains.
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The BEA reported that the main contributors to GDP growth in the first quarter were investment, exports, consumer spending and government spending. (Tom Fox/The Dallas Morning News via Getty Images)
The rise of government spending led by rising federal worker compensation after the government shutdown ended in the fourth quarter, when it fell as federal workers missed paychecks.
The increase in consumer spending was mainly caused by services led by health careincluding both hospital and nursing home and outpatient services.
Real final sales to private households, which is the sum of consumer spending and total private investment, rose 2.5% in the first quarter after a modest increase of 1.8% in the fourth quarter.
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Investments in AI data centers helped boost GDP. (Stock)
What do the experts say?
Michael Pearce, chief US economist at Oxford Economics, said “the core of the economy remains strong in Q1, driven by the creation of AI and tax cuts he started eating. Those factors will continue to fuel growth throughout the year, but rising energy prices will take some of the shine off what would have been a strong year for the economy.
“Some of the strength in consumer spending in March is a return to poor weather at the start of the year. Financial momentum is more than a drag. high power values for now, but that balance will start to shift in the coming months, especially as electricity prices continue to rise.”
Gregory Daco, chief economist at EY-Parthenon, said that while “AI investment promises to strengthen organic productivity growth in the coming years, its immediate impact on increased capex, infrastructure construction and energy demand is likely to add to inflationary pressures.”
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“Private sector demand showed stronger momentum than in Q4 2025, but it shows an unfavorable balance where the three narrow A pillars of growth – affluent consumers, AI investment and asset price gains – close an uneven base where the benefits of the article look good, but hide the weaknesses,” said Daco.
