AI Provided Nearly All The GDP Growth In The First Quarter

Let’s go over the AI-GDP math to see how I arrive at the numbers.

Change in AI-Related Spending from the BEA

Change in Real Spending in Billions of Dollars

• IP Equipment: 64.1 billion

• Software: 46.1 billion

• IP Research and Development: 11.1 billion

• Private Nonresidential Fixed Investment: 92.6 billion

Those are all BEA numbers. Because of the way the BEA calculates real numbers, the sum of the parts usually does not match the whole.

Real Private Fixed Investment

Change in Real Private Fixed Investment Spending from the BEA

• Private Nonresidential Fixed Investment: 92.6 Billion

• Private Residential Fixed Investment: -15.6 Billion

• Private IP Equipment, IP Software, R&D: 121.6 billion.

Again, Because of the way the BEA calculates real numbers, the sum of the parts usually does not match the whole.

Gross Private Domestic Contributions

That’s the detail table of actual BEA contributions.

Nonresidential Gross Private Domestic Percentage Point Contributions

• Total: 1.39

• Information Processing Equipment: 0.83

• Software: 0.51

• Research and Development: 0.18

• IP+Software+R&D: 1.52

That bottom line is key. IP+Software+R&D provided 1.52 percentage points out of a total of 1.39 Nonresidential Gross Private Domestic percentage points.

Note that structures subtracted 0.19 percentage points.

There is no breakdown for IP-related structures, but it’s reasonable to believe that number was positive. If so, the AI-contribution was even higher.

Real First-Quarter GDP and GDI

• Real GDP: 2.0%

• Real Final Sales: 1.6%

• Real Final Private Domestic Sales: 2.5%

• Real Final Domestic Sales: 2.8%

• Real GDI: N/A

Real Gross Domestic Income (GDI) is not available in the advance (first) release of the quarter.

The difference between real GDP and Real Final Sales is Change In Private Inventories (CIPI) that nets to zero over time.

Real Final Sales is the bottom line estimate of the economy.

AI Percent Contribution to Overall Result

• Real GDP: 1.52 PP of 2.0 = 76.0 percent

• Real Final Sales: 1.52 PP of 1.6 = 95.0 percent

• Real Final Private Domestic Sales: 1.52 PP of 2.5 = 60.1 percent

• Real Final Domestic Sales: 1.52 PP of 2.8 = 54.3 percent

As a percentage of real final sales, the bottom line estimate of the economy, AI-related spending provided 95 percent of the total.

AI-related spending provided 76 percent of the topline number, and 60 percent of Real Final Private Domestic Sales, the Fed’s favorite metric.

For more first-quarter numbers, please see US Economy Expands at 2.0 Percent in 2026 Q1, a Look at the Numbers

Strip out government spending, and you are at 1.3 percent. That 0.73 PP contribution from government won’t be repeated.

Upward Pressure on Interest Rates

Yesterday, I commented There’s Upward Pressure on Interest Rates With a Slight Bias for Fed Hikes

Also note The Long Bond Yield Is Signaling a Huge Fear of Inflation

The 30-year long bond yield is just 17 BPs from a new 18-year high.

This GDP report reinforced the view that hikes are more likely than cuts.

So, good luck to incoming Fed Chair Kevin Warsh if he thinks rate cuts are coming.

For discussion, please see Powell’s Last Meeting as Fed Chair, Rates on Hold, a Dispute Over Future Bias

The Fed can say what it wants, but the price of oil is more important.