"The consumer rescued the quarter" but the cushion is wearing thin
The US economy expanded at a 1.5 percent annualized rate from April through June, missing forecasts as an import surge tied to the artificial intelligence buildout widened the trade deficit and weighed on output.
The advance estimate, released Thursday, marked a slowdown from the 2.1 percent pace recorded in the first quarter, according to the Commerce Department's Bureau of Economic Analysis.
Economists surveyed by Dow Jones had looked for growth of 1.8 percent, CNBC reported.
Consumer spending did much of the heavy lifting.
Outlays rose at a 3.2 percent annual rate, up sharply from 0.5 percent in the January-to-March quarter and the fastest pace in nearly a year, CNN reported.
US household cushions are thinning, however: the personal savings rate fell to 2.7 percent, its lowest in four years, per CNBC, and Reuters noted that the tax refunds from US President Donald Trump's "One Big Beautiful Bill" that fuelled earlier spending have largely run their course.
"The consumer rescued the quarter," Olu Sonola, head of US economics at Fitch Ratings, told AP News.
He said "AI investment remains a powerful growth story," but the import surge behind the buildout shows an AI boom does not automatically deliver an equally large lift to US GDP.
Business investment stayed firm.
According to AP, spending excluding housing rose at an 8.4 percent pace, down from 10.6 percent a quarter earlier, while Reuters reported equipment spending climbed 15.2 percent for a second straight quarter of double-digit growth.
Final sales to private domestic purchasers, a gauge of underlying demand that strips out trade, inventories and government spending, accelerated to 3.9 percent from 1.7 percent, its fastest since early 2023.
The catch was imports.
The AI buildout leans heavily on foreign chips and equipment, and Reuters reported the widening trade gap sliced 1.01 percentage points off growth, the steepest drag since early 2025.
AP put the hit from imports at 1.5 percentage points.
CNN, citing Commerce Department data, said the trade deficit jumped 42.2 percent to a seasonally adjusted US$77.6bn in May, the highest in nearly a year.
Inflation stayed well above target.
The personal consumption expenditures price index rose 3.7 percent in June from a year earlier, down from 4.1 percent in May, per the BEA, while core PCE, which excludes food and energy, eased to 3.3 percent from 3.4 percent.
The June relief partly reflected falling energy costs, with gasoline down 9.2 percent amid a lull in the Middle East conflict, CNBC reported.
Both readings remain above the Federal Reserve's 2 percent goal, where inflation has sat for more than five years, according to AP.
That backdrop kept the Fed cautious.
US policymakers held the benchmark rate at 3.5 to 3.75 percent on Wednesday in a 9-3 vote, CNBC reported, with three regional presidents dissenting in favour of a hike.
Some economists now expect an increase in September.
Stephen Stanley, chief US economist at Santander US Capital Markets, told Reuters that "unless the softer June result proves to be the start of a sharp break in the trend," Chairman Warsh and the FOMC will struggle to put off rate hikes much longer.
Markets took the data in stride.
The Nasdaq climbed 2.6 percent, the S&P 500 rose 1.2 percent and the Dow Jones Industrial Average added 0.5 percent, Al Jazeera reported, lifted by a stronger-than-expected forecast from Microsoft.
Treasury prices fell, according to Reuters, with the 30-year yield reaching a 19-year high.
Testifying to senators earlier this month, Fed Chairman Kevin Warsh framed the spending as durable.
"We don't know the extent to which the economy will benefit from the AI build-out," he told the hearing, according to CNN.
Even so, he said, what is now called "AI investment" will soon be called just "investment."
