U.S. Economy Sends Mixed Signals as CEOs and Economists See Resilience Beneath the Strain

Resilient consumers and business investment are keeping growth intact

The U.S. economy continues to grow, although the pace has moderated. Gross domestic product expanded at a 1.5% annualized rate in the second quarter, down from 2.1% in the first quarter. July payrolls declined by 23,000, while unemployment remained near 4.1%. At the same time, private domestic demand increased 4.2%, highlighting continued activity beneath the softer headline growth figures.

The picture emerging from business leaders, economists and consumers is similarly mixed. CEO David Solomon described consumers as resilient and the economy as performing well, pointing to an enormous investment cycle and strong corporate earnings. Chicago Fed President Austan Goolsbee, meanwhile, characterized the labor market as “stable without being good,” with both hiring and layoffs unusually low.

Key Points

• The U.S. economy grew at a 1.5% annualized rate in the second quarter, while private domestic demand rose 4.2% and unemployment remained near 4.1%.
• Consumers continue to support economic activity despite persistent inflation and weaker sentiment, with personal consumption spending rising at a 3.2% annualized pace in the second quarter.
• Business leaders and economists see important sources of resilience, including corporate earnings and AI-related investment, but weak hiring, tariffs, geopolitical tensions and affordability remain significant pressures.

Consumers Are Spending, but Confidence Tells a Different Story

Consumer spending remains one of the strongest supports for the U.S. economy. Personal consumption spending increased at a 3.2% annualized rate in the second quarter, even as inflation continued to pressure household purchasing power. Credit-card use has helped finance some of that spending, but consumer delinquencies have remained relatively stable over the past two years.

The strength in actual spending contrasts sharply with how households feel about economic conditions. Cost-of-living concerns pushed the University of Michigan’s Consumer Sentiment Index lower in August after two consecutive months of improvement. Higher gasoline prices connected with the Middle East conflict have added to those concerns.

There are also signs of pressure beneath the spending data. Personal income increased 0.4% in July, but real spending was mostly flat, the saving rate fell to 3%, and retail sales declined 0.6%. The PCE inflation index was running 3.7% above the prior year.

That combination helps explain the current economic divide: households continue spending even while reporting considerable frustration with prices and affordability.

Why Does the Labor Market Look Stable and Weak at the Same Time?

The unemployment rate remains relatively low at about 4.1%, and it has not been rising. Historically, unemployment has been above that level more than 75% of the time since the end of World War II.

Yet the headline unemployment rate does not capture all of the weakness beneath the surface. The economy has been creating fewer jobs and lost jobs in July. Labor-force participation has also declined, while businesses remain cautious about hiring because of uncertainty surrounding trade policy, Middle East tensions and the potential effect of artificial intelligence on labor needs.

Goolsbee described the labor market as “stable without being good.” Hiring is extremely low, at levels associated with recessionary periods, but layoffs are also extremely low. That unusual combination means businesses are not broadly cutting existing workers, but they are also showing limited willingness to add new ones.

Consumers are noticing the change. An August Conference Board survey showed that the share of respondents describing jobs as plentiful improved for the first time in three months but remained near its lowest level since February 2021.

CEOs See AI Investment and Corporate Profits Supporting the Economy

Solomon's assessment of the economy emphasizes two important supports: resilient consumers and a large business-investment cycle.

He described the current investment cycle as “enormous,” pointing to spending surrounding AI, data centers and related infrastructure. Corporate profits have also been strong. U.S. corporate profits from current production increased by $400.9 billion during the second quarter, compared with a $74.4 billion increase during the first quarter.

AI investment, however, presents a more complicated economic picture. Goolsbee noted that large data-center projects can contribute to productivity, but they also require substantial investment and compete for scarce resources such as land. That competition can raise costs and potentially add to inflationary pressure.

Evidence of AI-related productivity improvements is beginning to appear, although the gains remain uneven. Generative AI was used at work by 39.2% of employed adults by the second quarter, up from 28.2% in the third quarter of 2024. An NBER field study found that AI increased customer-support productivity by nearly 14%, with the largest improvements among less-experienced workers.

At the broader economic level, however, the effect remains less clear. AI adoption among U.S. businesses was only 17% to 20% through early May, while productivity growth has yet to show an economy-wide acceleration attributable to the technology.

What It Means for Investors

The current stock market update reflects an economy that is neither showing broad contraction nor operating without meaningful pressure.

Consumer spending remains supportive, unemployment is relatively low, corporate profits have strengthened and AI-related capital spending is contributing to economic activity. Those factors help explain why business leaders such as Solomon continue to describe underlying conditions as resilient.

At the same time, inflation remains a persistent constraint. Average hourly earnings have begun losing ground to prices again, while weak hiring and falling perceptions of job availability show why household sentiment remains considerably less positive than some headline economic statistics suggest.

For market sentiment, the contrast between spending and confidence, along with the unusual combination of low hiring and low layoffs, makes incoming consumer, labor and inflation data particularly relevant to assessing the direction of the economy.

Conclusion

The U.S. economy enters the next phase with several important sources of support but also clear areas of strain. GDP continues to expand, consumers are still spending, unemployment remains relatively low, corporate profits have strengthened and AI infrastructure is generating substantial investment.

The weaker signals are concentrated around affordability, inflation and hiring. Retail sales declined in July, consumer sentiment weakened in August, wage growth is again losing ground to inflation, and businesses remain reluctant to add workers.

That leaves the economic picture unusually divided: CEOs can point to resilient spending, profits and investment, while consumers and labor-market indicators continue to show meaningful pressure beneath the surface.

FAQs

Is the U.S. economy still growing?

Yes. U.S. GDP expanded at a 1.5% annualized rate in the second quarter, down from 2.1% in the first quarter. Private domestic demand increased 4.2%, indicating continued underlying economic activity.

What is supporting the U.S. economy?

Consumer spending, corporate profits and business investment are important sources of support. Personal consumption spending increased at a 3.2% annualized pace in the second quarter, while corporate profits from current production rose by $400.9 billion.

Is the U.S. labor market weakening?

The labor market is showing mixed signals. Unemployment remains near 4.1% and layoffs are low, but hiring is also unusually weak and the economy lost jobs in July. Chicago Fed President Austan Goolsbee described the labor market as “stable without being good.”

What does David Solomon say about the U.S. economy?

CEO David Solomon described consumers as resilient and said the economy is performing well. He also pointed to a large investment cycle and strong corporate earnings as important supports, while acknowledging headwinds from tariffs and the Middle East.

How is AI affecting the U.S. economy?

AI is contributing to substantial investment in data centers and related infrastructure, while some workplace studies are showing productivity improvements. However, AI adoption remains limited across the broader business economy, and an economy-wide productivity acceleration has not yet become visible.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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