US Economic Growth Slows in Second Quarter, But Domestic Demand Robust

• S. economic growth slowed in the second quarter amid a widening ​trade deficit, but robust consumer spending and business investment related to the buildout of artificial intelligence infrastructure underscored strong domestic demand.
• The moderation reported by the Commerce Department ‌in its snapshot of gross domestic product on Thursday also reflected continued inventory drawdown to meet the strong domestic demand. The report suggested the economy largely weathered the Middle East conflict last quarter, though renewed hostilities between the United States and Iran posed a downside risk to growth in the second half of the year.
• Generous tax refunds this year from President Donald Trump's "One Big Beautiful Bill," which helped to fuel consumer spending last quarter, are behind, leaving households without a ​cushion as gasoline prices resume their upward trend. With the saving rate at a four-year low, consumers are unlikely to continue dipping into savings to maintain their spending, adding to the ​economy's growing vulnerabilities, economists said.
• Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged at a 3.2% rate after abruptly slowing to a 0.5% growth pace in the January-March quarter.
• In addition to larger tax refunds, spending was boosted by higher-income households that are benefiting from strong growth in asset prices, but a recent ​stock market sell-off could slow the momentum. The recently ended FIFA World Cup tournament also likely added to the strength, as did midterm election-related spending by nonprofits.
• The AI investment boom, which is showing no ​signs of slowing despite investor concerns that valuations of many technology companies have become stretched, also helped to boost domestic demand. Business spending on equipment increased at a 15.2% pace, notching a second straight quarter of double-digit growth.

(Source: Reuters)