‘The economy is increasingly reliant on AI gains’: U.S. GDP grew 2.2% amid ‘sudden reversal of optimism’ on AI tech

The U.S. economy grew at a solid 2.2% pace from April to June, according to a report released by the Commerce Department on Wednesday. This growth marked a noticeable improvement from the 2.5% pace recorded in the previous quarter, January through March. Economists were taken aback by the second-quarter growth, as they had anticipated little or no change in the GDP number.

Consumer spending, which accounts for approximately 70% of U.S. economic activity, played a significant role in the economy's expansion. It increased at an annual rate of 3.8%, up from 0.7% in the January-March period. This surge in spending was driven by a robust stock market, fueled by optimism surrounding artificial intelligence (AI) prospects. The wealth generated from AI investments has enriched wealthy investors and provided them with additional funds to support their consumer spending.

However, the overall growth figure was somewhat dampened by the rise in imports. Exports are subtracted from GDP calculations since it only encompasses domestic production. Imports surged at a 12.6% annual pace during the same period, largely due to an increase in shipments of computer chips and other products supporting AI investment. This sharp rise in imports contributed to a 1.7 percentage point decrease in second-quarter growth.

Despite the challenges posed by geopolitical tensions with Iran and the surge in energy prices caused by these conflicts, the U.S. economy has demonstrated surprising resilience. Business investment, excluding housing, increased by 9% in the second quarter, reflecting the AI investment boom. Additionally, a measure of the economy's underlying strength, which excludes volatile government spending and trade numbers, grew at a robust 4.6% rate, up from 1.8% in the first quarter.

Economist Michael Pearce of Oxford Economics commented, "The economy is increasingly reliant on AI gains and the corresponding wealth effects, boosting higher-income households' spending power and fueling recent growth." However, Pearce also cautioned that the economy remains sensitive to sudden reversals of optimism in the AI sector.

The housing market, which has been hindered by high mortgage rates, showed a slight increase of 2.8% in investment, marking the first rise in this category since the end of 2024. The Commerce Department's report on Wednesday marked the final of three estimates of second-quarter GDP growth. The forthcoming estimate for third-quarter growth is scheduled for October 29.