The Bureau of Economic Analysis (BEA) recently took yet another stab at estimating U.S. Gross Domestic Product (GDP) for the 1st quarter of 2026.(1) Ordinarily, by this point, I would have ignored the report. It is old news. Also, by its third attempt, the BEA is usually just making relatively minor tweaks to the data.
So, there is often much to ignore. However, this last time was a little different.
Don’t worry. I am not going to bore you with all of the changes the BEA made to the various line items. By all means, you can go to the BEA website and check out the data for yourself, but I am not sure why you would.(2) It is pretty dry reading for someone who doesn’t do that sort of thing for a living.
So, painting in somewhat broad brushstrokes from the data the BEA now declares official, I will synopsize U.S. GDP for the 1st quarter of 2026 thusly:
“Corporate investment, largely in “artificial intelligence (AI),” and Federal government spending propelled the US economy at the start of the year. Everything else? Not so much.”
Seriously. The BEA now estimates the U.S. economy grew 2.09% during first quarter 2026. Corporate investment in “information processing equipment” accounted for 0.77% of the growth. Purchases of “intellectual property products” contributed another 0.74%. For its part, Federal “government consumption expenditures and gross investment” added an additional 0.57%.
So, 0.77% + 0.74% + 0.57% = 2.08%.
Therefore, the rest of the economy, and I mean everything else in aggregate grew, 2.09% – 2.08% = 0.01%. Using a somewhat complicated ‘economics’ term I picked up somewhere along the way, that “ain’t much.”
You see, “ain’t” is no less than the second derivative of the phrase “is not,” which makes it surprisingly erudite expression when you think about it. I wished I had used such logic on my teachers back in the day. Then again, maybe not. I was on pretty thin ice with most of them anyhow.
Listen, economic growth is still growth, which is always better than the alternative.
No argument. However, I (and just about everyone else) would like to see broader and deeper economic activity. For most intents and a lot of purposes, if you aren’t in the business of designing, making, marketing or schlepping memory chips, data centers, and all other things associated with ‘accelerated computing,’ I would forgive you for not being terribly sanguine about the U.S. economy.
Then, there is also the possibility that the growth in AI investment could eventually slow.
To be sure, that sentence is almost heresy to many. If not a heretic, then I must be an ‘Epsilon-Minus Sub-Moron,’ or something along those lines, because I clearly don’t “get it.” My understanding of reality is as dim as a 5-watt bulb.
That isn’t it at all. It is just the math.
You see, for AI investment to continue to contribute such an outsized portion to the GDP equation, it will have to continue to grow at a faster rate than the remainder of the economy.
To be sure, this could be the case for the next umpteen quarters. However, at some point in the hazy future, AI investment would absorb so much capital and constitute such a large percent of the economy that even the dumbed down definition of “the law of large numbers” would catch up to it.
What I am about to relay is my manipulation of the quarterly estimates for “information processing equipment” and “intellectual property products” in the official GDP report(s). I pulled the data off Bloomberg Financial which sources it straight from the BEA. You are welcome to go here and mess around with the data.(3)
Based on my calculations, the U.S. economy grew its investment(s) in these two combined sectors by about $211 billion over the trailing 4-quarters, ending with the 1st quarter of 2026. That was roughly a 15.9% growth rate, which is the highest 12-month growth rate I observed using quarterly data, going back to the end of 1985.
So, the U.S. economy is currently investing more in technology, in both absolute and relative terms, than it has at any point over the last 40-years. Since (one could argue) we are experiencing historic growth rates in this sector, it is hard to expect the growth rates to continue indefinitely. Note, I am talking about the rate of growth, not the absolute amount of the dollars invested.
For instance, let’s assume the U.S. economy increases its investment in these areas by $150 billion over the next 12-months. That would take my calculations to roughly $1,689 billion, which is not only a huge amount of capital but yet another all-time high. However, the growth rate will have slowed from the current 15.9% to a shade over 9.7%.
This, with the third-highest 4-quarter absolute increase in these two line items in history! Still, and unfortunately, it would be slowing and, therefore, not contributing as greatly to the overall GDP equation. It would still be contributing, mind you, just not as much as it is currently.
Admittedly, I have the distinct benefit of looking at my spreadsheet work on my other monitor as I type this newsletter. So, I completely understand there is an element of “you have to trust me on this,” but, well, you have to trust me on this. The numbers don’t lie.
Basically, what I am positioning is the following, and I will be quoting myself again.
“The U.S. economy will continue to invest significant amounts of capital in AI and related technology. As the absolute size of the investment grows, the relative growth rate will likely decrease due to the so-called “law of large numbers.” (4) It remains to be seen what impact this will have on investor behavior in this area. However, it is intuitive, and in my way of thinking, it could influence how investors evaluate these companies relative to the broader market.”
Hopefully, this makes some sense. If so, you can undoubtedly reason the remainder of the economy will have to pick up the proverbial pace IF the U.S. economy is going to continue to grow at even the most recent 2.1% clip. In order to do so, it seems money will have to come from somewhere in order to stimulate things everywhere else.
Any ideas from where? That could be a topic for discussion another time.
In conclusion, if you have read this far, I suspect you are sorry I didn’t ignore the BEA’s most recent tweaks to the 1Q 2026 GDP report. Aren’t you? Hey, even if I get everything else wrong, I suspect I got that right.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Sources:
- Bureau of Economic Analysis – GDP (Third Estimate), Industries, Corporate Profits, State GDP, and State Personal Income, 1st Quarter 2026.
- Bureau of Economic Analysis – Gross Domestic Product. Accessed June 26, 2026.
- Bureau of Economic Analysis – National Data. Accessed June 26, 2026.
- Investopedia – Understanding the Law of Large Numbers: Key Concepts and Applications. May 8, 2026.
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