As per data from the Commerce Department released on Thursday, the economy expanded at an annualised rate of 1.5% from April to June. This figure fell short of the 2.1% growth projected by economists surveyed by Reuters and was also slower than the 2.1% growth recorded in the first quarter.
The sluggish growth is occurring as the US economy grapples with the repercussions of the conflict in West Asia, which has disrupted shipping through the Strait of Hormuz and caused a spike in global oil prices. Elevated crude prices have led to a significant rise in US fuel expenses, intensifying inflationary pressures throughout the quarter.
Despite this slowdown, consumer expenditure remained a positive element. Household spending, which constitutes more than two-thirds of the US economy, grew at an annualised rate of 3.2%, up from just 0.5% in the first quarter. Consumers kept spending on goods and services, even while facing higher fuel costs.
The Commerce Department indicated that robust consumer demand provided support to the economy in the face of increased imports and reduced government spending.
Business investment also held strong, with companies continuing to allocate funds toward artificial intelligence infrastructure, including IT equipment and software. The ongoing surge in AI has increased demand for imported semiconductor chips and other tech products.
However, these imports negatively impacted the GDP calculation because imported goods do not contribute to domestic production. Economists noted that rising imports associated with data centre development and AI investments somewhat offset the benefits stemming from increased domestic demand.
The GDP report was published a day after the Federal Reserve maintained its benchmark interest rate at 3.5% to 3.75%. Policymakers chose to keep rates unchanged as they evaluate the effects of rising inflation and geopolitical tensions on the economy.
Fed Chair Kevin Warsh characterized the economy as resilient, highlighting ongoing strength in productivity, investment, and the labor market. He emphasized that AI-related investment continues to be a major driver of economic activity.
Looking forward, economists point out that energy prices pose one of the most significant risks to the US economy. A sustained rise in oil and gasoline prices could keep inflation high and complicate the Federal Reserve’s policy choices in the months ahead.
