US economy gets a solid B+ grade in latest GDP report

The US economy continues to grow – albeit slower than expected – despite major headwinds from higher oil prices and the conflict in the Middle East.

The Commerce Department reported that gross domestic product expanded at an annual rate of 1.5 percent in the second quarter period from April to June, a bit lower than economists were projecting.

Gross domestic product measures the total value of all goods and services produced in the US over the course of one year.

Despite the drag from the war with Iran, the economy was buoyed by business investment – chiefly for the mᴀssive buildout of data centers to drive AI – and robust consumer spending.

The latter was notable: Consumer spending accounts for around two thirds of the economy, and it increased at an annualized rate of 3.2 percent in the second quarter, up from 0.5 percent in the first quarter.

The second quarter marks the one-year anniversary of President Donald Trump’s ‘liberation day,’ when he declared a national emergency over trade deficits and implemented sweeping tariffs on nearly all US imports.

The economy has shown impressive endurance despite shocks from the tariffs – the Tax Foundation, an independent think tank, estimated that they reduced GDP by 0.4 percent and were equal to a $900 tax on every American family. If you backed out that impact, the US economy looks even more robust.

Today’s second-quarter report follows the first quarter’s 2.1 percent annualized rate of growth in January through March – slower for sure, but also a very long way from a recession.

The Stargate data center in Abilene, Texas, was among the AI infrastructure investments holding up the US economy in the second quarter.

Consumer spending was another bright spot for the US economy in the second quarter.

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Business investment rose 8.4 percent in the quarter as spending on AI infrastructure continued to grow, while the trade deficit subtracted more than 1 percentage point from growth.

One troubling sign in the report was an alternative measure of inflation, the so-called ‘personal consumption expenditures’ or PCE. 

June’s PCE was 3.7 percent – still very high, without the cooling off seen in the June CPI report earlier this month.

‘The data predates July’s sharp rebound in energy prices, which could put renewed upward pressure on inflation throughout the summer,’ eToro US Investment Analyst, Bret Kenwell told the Daily Mail.

Kenwell warned that as long as tensions in the Middle East continue driving oil prices higher, consumers could face additional pressure at the pump and markets might have to contend with a more complicated inflation outlook.

‘Ultimately, disappointing second-quarter growth may give the Fed some cover to remain on hold, but elevated inflation is making that position increasingly difficult to defend,’ said Kenwell.

With markets still digesting the Fed’s latest comments and navigating an uneven earnings season, the next few weeks could be critical in shaping the course of the stock market this summer.