Business investment surged at a 2.1% annual pace from January through March, driven by an artificial intelligence boom, while consumer spending fell sharply as workers faced higher prices for essentials like gasoline and technology. The U.S. economy expanded at this solid and unexpected pace in the first quarter, according to the Commerce Department’s final estimate.
This increase in gross domestic product marked a rebound from 0.5% growth in the last three months of 2025, a period when a 43-day federal government shutdown weighed on the economy. The Commerce Department upgraded its previous first-quarter estimate from 1.6% growth, highlighting the concentrated nature of this expansion.
Consumer spending, which typically accounts for around 70% of U.S. economic activity, fell sharply from the fourth quarter of 2025 and from the Commerce Department’s previous estimate. This decline suggested consumers may be cutting back in the face of higher gasoline prices, which were caused by the ongoing war with Iran.
Capital's Extraction
The Federal Reserve’s preferred inflation gauge rose to a new three-year high in May as gas prices peaked. Consumer prices rose 4.1% in May from a year earlier, marking the largest annual increase since April 2023, according to the Commerce Department.
On a monthly basis, inflation was 0.4% last month, matching April’s increase and down from 0.7% in March. This increase was largely driven by more expensive gas, directly linked to the war with Iran, as well as pricier semiconductors and other computer equipment in high demand for the artificial intelligence buildout.
Apple announced significant price increases for its Macs and iPads, citing a memory chip shortage brought on by the artificial intelligence boom. The company described the demand spike as an “unprecedented challenge” for the consumer electronics industry, stating, “We have never seen a component price increase this much, this quickly.”
The new, entry-level MacBook Neo will now cost $699, an increase from $599. The 512 gigabyte MacBook Air now costs $1,299, up from $1,099. The one terabyte MacBook Pro is priced at $1,999, an increase from $1,699. The 128 gigabyte iPad Air is now $749, up from $599, while the 256 gigabyte iPad Pro Wifi is now $1,199, up from $999. These price hikes represent a direct transfer of wealth from consumers to corporate coffers.
U.S. markets rose on the final day of trading during the week after oil prices eased back to where they were before the war with Iran. However, drops for AI stocks kept the overall market in check, with the S&P 500 experiencing its second losing week in the last 13, largely due to a retreat in the tech sector, particularly artificial-intelligence companies and related technology.
The Burden on Labor
The average long-term U.S. mortgage rate edged higher this week, staying close to 6.5%, where it has been for the last six weeks. The benchmark 30-year fixed-rate mortgage rose to 6.49% from 6.47% last week, according to Freddie Mac. One year ago, the average rate was 6.77%.
Borrowing costs on 15-year fixed-rate mortgages also rose to 5.84% from 5.81% last week; a year ago, it was 5.89%. These elevated rates continue to make housing less accessible and more expensive for working families.
Fewer Americans applied for jobless aid last week, with applications for unemployment benefits in the week ending June 20 falling by 12,000 to 215,000. This figure was fewer than the 225,000 new applications forecast by analysts surveyed by FactSet. Weekly filings for unemployment benefits are considered representative of U.S. layoffs and are a real-time indicator of the health of the job market, yet they do not reflect the ongoing pressure of inflation and stagnant wages on the working class.
The State's Role in Crisis
The federal government shutdown in the last three months of 2025 weighed on the economy, demonstrating the state's direct impact on economic stability. The war with Iran, a product of foreign policy, directly contributed to higher gasoline prices, placing an additional burden on consumers and revealing how state actions serve to extract wealth from the working class.
The Federal Reserve's preferred inflation gauge reaching a new three-year high in May underscores the limitations of state institutions in managing the systemic contradictions of capital accumulation, particularly when driven by corporate pricing power and imperialist conflicts.