On 30/7, the US Department of Commerce announced that the country's gross domestic product (GDP) increased by 1,5% in the second quarter. This rate was lower than analysts' forecasts in a Reuters survey and slower than the 2,1% growth recorded in the first quarter.
US economic growth slowed amid a rising trade deficit. However, accelerating consumer spending and robust business investment in artificial intelligence (AI) infrastructure indicate that the economy's foundation remains solid.
Consumer spending, which accounts for two-thirds of US GDP, increased by 3,2%, after rising only 0,5% in the first quarter. Despite the conflict in the Middle East, consumer spending remained dynamic, partly due to larger tax refunds this year, helping consumers cope with rising gasoline prices.
Rising prices of other assets also provided more disposable income for high-income households. The recently concluded World Cup and spending by organizations related to the midterm elections likely also boosted consumption.
The AI craze shows no signs of slowing down, contributing to increased domestic demand. However, economists warn that the conflict in Iran, now in its 6th month, could depress demand and economic growth in the latter half of this year.
At its policy meeting this week, the US Federal Reserve (Fed) kept its benchmark interest rate unchanged at 3,5-3,75%. The agency assessed that US economic activity "continues to grow robustly, though uncertainty remains high, partly due to the conflict in the Middle East".
Nevertheless, economists predict the Fed may raise interest rates as early as September to curb inflation. The personal consumption expenditures (PCE) index, the Fed's preferred inflation gauge, increased by 3,7% in June compared to the same period last year. This figure matched forecasts.
Gasoline prices in the US have risen again following renewed conflict in the Middle East in recent days. As wage growth fails to keep pace with inflation, US households will draw on their savings. However, this is unlikely to be sustainable. Some analysts suggest households will increase savings to hedge against risks amid economic uncertainties.
Ha Thu (according to Reuters)
