Why the U.S. Economy Slowed in the Second Quarter
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What is the main topic discussed in this episode?
This podcast is brought to you by ReliaQuest. Cyber criminals are constantly attacking. They want your data. They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. U.S. economic growth slowed in the second quarter, but there were some positive signs in the details of the report.
We'll dig in. Plus, the buzzy hedge fund Situational Awareness sold off most of its stock portfolio after big losses on A.I.,
Leo Aschenbrenner flew a little high in the sky, close to the sun, and it kind of burned him a little bit.
And markets rally after yesterday's punishing session, with Microsoft adding its biggest percentage gain in almost two decades. It's Thursday, July 30th. I'm Alex Ocele for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. U.S. economic growth slowed in the second quarter. The Commerce Department said today that U.S. GDP, that is the value of all goods and services produced here, rose at an annual 1.5% rate. That's slower than economists had expected and slower than the previous quarter. WSJ economics reporter Harriet Torrey is here to discuss.
Why did U.S. GDP growth slow to 1.5% in Q2?
Harriet, one of the things that dragged on GDP for the last quarter was actually something that's propelled stock markets, the AI boom. Could you explain what's going on there?
We've seen very, very strong investment in artificial intelligence. That, of course, is generally a positive thing for the economy. You know, the fact that these data centers are being built, that's all generating economic activity. But the other side of the coin is that many of these components that are used in artificial intelligence, things like semiconductors, are imported from overseas. So imports are technically counted as a subtraction when you do the calculation of GDP. So that ends up, you know, making the headline GDP number look a little soft. But when you look a bit under the hood, there's a measure called final sales to private domestic purchases, which is just a measure of consumer spending and business investment.
And that rose at a 3.9% rate in the second quarter, which is very strong. And those are definitely good signs for future growth.
Yeah, I wanted to ask you about consumer spending. What was driving that? I mean, is it just because gas prices rose?
We did have this gas price shock that continued in the second quarter. That is definitely not great for households. But at the same time, they seem to largely shrug it off. And we saw that consumer spending was really very strong.
Also out today are the latest numbers for the Fed's preferred measure of inflation that's known as the Personal Consumption Expenditures Price Index. It fell by 0.1 percent last month, but it's still pretty high at 3.7 percent, certainly above the 2 percent of the Fed's target rate. Yesterday, of course, the Fed held rates steady. But what do these latest numbers suggest officials might do at the next meeting in September?
We did see a slight cooling off of inflation in June, according to PCE. But at the same time, demand appears to be strong in the economy. And that is potentially a sign that inflation could continue to kind of spread out, that it might not be limited to just this oil price shock related to the conflict in Iran.
That was WSJ reporter Harriet Torrey. Thank you, Harriet.
Thanks.
There was a huge run-up in stocks today after their big tumble yesterday. The Nasdaq closed up almost 3% higher, with a rally in chip stocks and Microsoft's best market day since 2008 after yesterday's earnings. It closed up 16%. The Dow and the S&P also climbed and both finished up more than 1%. Meanwhile, Treasury yields are at multi-year highs because of worries about rising inflation. That pushes up borrowing costs, which affects all kinds of economic activity, but in particular, the housing market.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–1:36
2
Why did U.S. GDP growth slow to 1.5% in Q2?
1:36–7:08
3
How did AI investment and imported chips make GDP look weaker?
7:08–10:05
4
Which consumer-spending details suggest the economy may be stronger than the headline?
10:05–12:33
5
What do recent PCE inflation and Fed actions imply for September policy?
12:33–14:09
Speakers
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