FXTRADING Financial Focus (Asia-Pacific 07/31)US Growth Slows, Consumption Remains Resilient

In the second quarter of 2026, US economic growth slowed notably, with real gross domestic product (GDP) expanding at an annualized rate of 1.5%, down from 2.1% in the first quarter and below the market expectation of around 2%. Although overall growth moderated, the data did not indicate a significant weakening of the US economy, with economic activity remaining in expansion territory. The slowdown was mainly driven by declines in government spending, weaker export performance, and a cooling in business investment.

From a structural perspective, consumer spending remained a key pillar supporting the US economy. Personal consumption expenditures in the second quarter increased at an annualized rate of 2.1%, significantly higher than the 0.4% growth recorded in the first quarter, indicating that household spending regained momentum after a weak start to the year. Part of the increase in consumption was supported by large tax refunds, which temporarily boosted disposable income and helped lift demand for goods and services, partially offsetting weakness in other areas of the economy.

However, as the impact of tax refund-related stimulus gradually fades, slower income growth and rising living costs may create downside risks for future consumer momentum. In particular, with energy prices rising due to geopolitical tensions, higher gasoline and other living expenses could reduce household spending capacity in other areas. A relatively low savings rate also suggests that consumers have limited room to further expand spending.

Business investment also showed signs of slowing, with the artificial intelligence-related infrastructure investment boom losing some momentum. Private investment growth declined to 0.5% from 1.4% in the first quarter. Large-scale capital spending in the technology sector had previously been an important driver of US economic growth, but as some companies entered an investment adjustment phase, the contribution of capital expenditure to growth weakened. At the same time, trade activity was also affected, with slower export growth and declining tourism-related service exports weighing on external demand.

It is worth noting that some indicators more closely reflecting domestic demand conditions still suggest that the US economy retains resilience. Final sales to private domestic purchasers, a measure focused on underlying domestic demand, grew at an annualized rate of 3.9% in the second quarter, significantly higher than the 1.7% increase in the first quarter. This indicates that actual demand from households and businesses remains relatively healthy. The decline in GDP growth therefore appears to be driven more by temporary factors such as government spending and trade fluctuations rather than a significant deterioration in the economys core momentum.

The external environment remains an important factor influencing the US economy. The ongoing Middle East conflict has disrupted energy supplies for several months, pushing up global oil prices and adding to inflationary pressures. Meanwhile, reduced government spending and adjustments to the Strategic Petroleum Reserve have also affected economic data. After the Federal Reserve kept monetary policy unchanged, markets are paying closer attention to future inflation trends and whether economic growth can maintain a balanced path.

From FXTRADINGs perspective, the slowdown in US GDP growth in the second quarter indicates that economic expansion is entering a more moderate phase, but resilient consumer spending and domestic private demand continue to provide support. In the short term, the economy is unlikely to experience a significant downturn due solely to one quarter of slower growth. However, as fiscal stimulus effects fade, business investment slows, and cost-of-living pressures increase, economic growth may gradually face greater challenges. Going forward, markets will closely monitor the sustainability of consumer spending, the recovery of business investment, and changes in inflation pressures, as these factors will determine whether the US economic expansion cycle can remain stable.