US Q1 GDP revised up to 2.1% as imports drag less than expected

The U.S. economy grew at a 2.1% annualized rate in the first quarter, the Bureau of Economic Analysis said Thursday, revising up its third estimate from 1.6% as a smaller subtraction from imports offset weaker consumer spending.

"The upward revision primarily reflected a downward revision to imports, which are a subtraction in the calculation of GDP, partly offset by a downward revision to consumer spending," the BEA said in its third estimate release.

The 2.1% reading compares with 0.5% growth in the fourth quarter of 2025. The revision added 0.5 percentage point from the second estimate. Positive contributions came from nonresidential fixed investment, exports, government spending, and consumer spending, the agency said.

The stronger headline growth reduces the urgency for the Federal Reserve to cut rates, even as the downward revision to consumer spending — the main engine of the U.S. economy — points to underlying softness. Markets now face a mixed signal: an economy expanding faster than initially thought, but with consumers potentially pulling back.

The Fed holds its benchmark rate at 5.25% to 5.50%, a level unchanged since July 2023. Before the revision, fed funds futures priced in roughly two quarter-point cuts by year-end, according to CME FedWatch data. A higher growth trajectory could push those expectations lower, keeping financial conditions tighter for longer.

The downward revision to consumer spending is particularly notable. Personal consumption expenditures, which account for about two-thirds of GDP, were revised lower, suggesting households are becoming more cautious after a period of resilient spending. That dynamic could intensify if the labor market softens further, though nonfarm payrolls have remained above trend in recent months.

The last time the U.S. economy saw a comparable upward revision was in the third quarter of 2023, when GDP was revised from 4.9% to 5.2%, a period that preceded the Fed's final rate hike of that cycle. The current revision, while smaller in magnitude, occurs at a more delicate juncture as inflation remains above the Fed's 2% target and consumer spending shows signs of cooling.

On the investment side, nonresidential fixed investment — spending on structures, equipment, and intellectual property — contributed positively, reflecting continued business spending on technology and manufacturing capacity. Government spending also added to growth, supported by state and local outlays.

Treasury yields edged lower after the release as the consumer spending revision tempered growth optimism. The S&P 500 held near session highs, with investors weighing the implications of stronger growth against the prospect of fewer rate cuts. The dollar index was little changed, reflecting the mixed signals from the data.

The GDP data marks the final revision for the first quarter. The BEA will release its advance estimate for second-quarter GDP on July 30, which will offer the first look at whether the economy maintained its momentum through the spring. If growth remains above trend while inflation stays sticky, the Fed's path to rate cuts becomes narrower, a scenario that would keep pressure on rate-sensitive sectors such as housing and small-cap equities.

This article is for informational purposes only and does not constitute investment advice.