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The Bureau of Economic Analysis (BEA) will provide its second estimate of 1Q Gross Domestic Product (GDP) this morning. Based on last month’s advance estimate, U.S. output rose in the first quarter at an annualized rate of 2.0%. When we review this morning’s release, our focus will be on looking forward, not back. Based on the advance data, the most-important result is likely to be that private investment grew 8.7% and contributed about 1.5 points to growth (approximately three quarters of the total). Almost all of that came from categories related to artificial intelligence. Investment in computers, software, and research & development added about 1.3 points to GDP growth. The equipment category grew about 17%, with computer gear up 67%. The intellectual property category grew 13%, with software up 23%. Note that this is investment, not consumption. Unlike a dozen donuts that are devoured in the office, a good investment can make the economy and its workers more productive. Nobel Prize winning economist Paul Krugman wrote in his 1990 book (The Age of Diminished Expectations) that “Productivity isn’t everything, but, in the long run, it is almost everything.” Krugman added, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” That is what is so important and encouraging about the level of private investment — and it may still have significant room to run. Even with the massive proliferation of information technology over the last quarter century, equipment, and intellectual property products, at 11.3% of 1Q GDP, have not yet surpassed their 11.6% share of GDP in the second quarter of 2000. But it appears that they will. On May 21, the Federal Reserve Bank of Atlanta’s GDP Nowcast provided an estimate for a 2Q26 GDP increase of 4.3% with equipment up 9.4% and intellectual property up 6.4%. Longer term, Nvidia CFO Colette Kress recently estimated that AI infrastructure spending is on track to reach $3-$4 trillion annually by the end of this decade.
The Bureau of Economic Analysis (BEA) will provide its second estimate of 1Q Gross Domestic Product (GDP) this morning. Based on last month’s advance estimate, U.S. output rose in the first quarter at an annualized rate of 2.0%. When we review this morning’s release, our focus will be on looking forward, not back. Based on the advance data, the most-important result is likely to be that private investment grew 8.7% and contributed about 1.5 points to growth (approximately three quarters of the total). Almost all of that came from categories related to artificial intelligence. Investment in computers, software, and research & development added about 1.3 points to GDP growth. The equipment category grew about 17%, with computer gear up 67%. The intellectual property category grew 13%, with software up 23%. Note that this is investment, not consumption. Unlike a dozen donuts that are devoured in the office, a good investment can make the economy and its workers more productive. Nobel Prize winning economist Paul Krugman wrote in his 1990 book (The Age of Diminished Expectations) that “Productivity isn’t everything, but, in the long run, it is almost everything.” Krugman added, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” That is what is so important and encouraging about the level of private investment — and it may still have significant room to run. Even with the massive proliferation of information technology over the last quarter century, equipment, and intellectual property products, at 11.3% of 1Q GDP, have not yet surpassed their 11.6% share of GDP in the second quarter of 2000. But it appears that they will. On May 21, the Federal Reserve Bank of Atlanta’s GDP Nowcast provided an estimate for a 2Q26 GDP increase of 4.3% with equipment up 9.4% and intellectual property up 6.4%. Longer term, Nvidia CFO Colette Kress recently estimated that AI infrastructure spending is on track to reach $3-$4 trillion annually by the end of this decade.