The US economy likely maintained a steady pace of growth in the second quarter, supported by stronger consumer spending and robust business investment in equipment tied to the buildout of artificial intelligence infrastructure. According to the Commerce Department’s advance gross domestic product report, the economy largely weathered the Middle East conflict, in part thanks to bigger tax refunds this year, which provided a cushion for consumers against higher gasoline prices stemming from the war.

Consumer Spending and Business Investment

Consumer spending, which accounts for more than two-thirds of US economic activity, likely accelerated after abruptly slowing to a 0.5% growth pace in the first quarter. In addition to generous tax refunds from President Donald Trump’s tax cuts, higher-income households who are benefiting from strong growth in asset prices are also driving spending. The recently ended FIFA World Cup tournament also helped to spur spending, as did midterm election-related spending by nonprofits.

Average gasoline prices have risen back above $4 a gallon amid renewed hostilities in the Middle East. Households have been tapping savings and saving less to maintain spending as wages have barely kept up with inflation, a situation that economists said could not continue indefinitely. The saving rate is near a four-year low of 3.0%.

Business Investment and Domestic Demand

Another quarter of double-digit growth in business spending on equipment was expected, with the AI investment boom showing no signs of slowing despite investor concerns that valuations of many technology companies have become stretched. The rapid growth in AI is masking weakness in business investment in structures, like factories, which is expected to have contracted for a 10th straight quarter.

Still, the strength in both consumer and overall business spending was expected to have lifted domestic demand last quarter. Final sales to private domestic purchasers, which exclude government, trade and inventories, increased at a 1.7% pace in the first quarter. This measure is closely watched by officials at the Federal Reserve.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.