Prime Highlights
- US GDP likely grew at a 2.1% pace last quarter, matching earlier growth.
- Economists warn the Middle East conflict could slow growth later this year.
Key Facts
- Consumer spending makes up more than two-thirds of US economic activity.
- The household savings rate is near a four-year low of 3.0%.
Background
The US economy likely continued growing at a steady pace in the second quarter, supported by stronger consumer spending and heavy business investment linked to artificial intelligence infrastructure, even as the ongoing conflict in the Middle East poses risks ahead.
According to a survey of economists, gross domestic product likely grew at an annualised rate of 2.1% last quarter, matching the pace seen in the first quarter. Estimates varied widely, ranging between 0.8% and 2.9%.
The war that the US started against Iran, after six months, has become a threat to economic growth for the remaining part of the year, although the US has been isolated from this economic threat. Analysts noted that consumer spending has stayed resilient and that investment in AI-related technology continues at a rapid pace.
Consumer spending, which makes up the largest share of economic activity, is believed to have picked up after slowing sharply earlier in the year. Larger tax refunds and rising asset prices among wealthier households were cited as key drivers, along with temporary boosts from global sporting events and election-related spending.
However, rising fuel prices, now above four dollars a gallon, are expected to weigh on households later this year, particularly those with lower incomes. Economists said families have been saving less to sustain spending, with the savings rate nearing a four-year low.
Meanwhile, business investment in equipment tied to AI is expected to show strong double-digit growth, even as spending on structures such as factories continues to decline. Residential investment is also expected to have fallen for a sixth straight quarter.
The Federal Reserve recently kept interest rates unchanged, though some policymakers favoured a hike, with further increases possible later this year.
