Economic Overview - The U.S. GDP growth rate for Q2 2025 was reported at 3.0%, significantly exceeding the mainstream forecast of 2.5%, but this figure is misleading due to a sharp 30.3% drop in imports, which artificially inflated the GDP data [1] - The core indicator of domestic private final purchases has seen a decline in annual growth rate from 2.7% last year to 1.2%, indicating underlying economic weakness despite the seemingly strong GDP figure [1] Consumer Behavior - Actual personal consumption growth increased from 0.5% in Q1 to 1.4% in Q2, but this is still below last year's robust performance, with service consumption remaining weak, only slightly recovering by 1.1% [3] - Despite acceptable income and savings levels, consumer and investor sentiment is cautious due to various uncertainties, leading to a reluctance to increase spending [5] Investment Trends - Non-residential fixed investment growth has significantly slowed, with construction investment plummeting by 10.3% in Q2 following a 2.4% decline in Q1, while residential investment also fell by 4.6% [5] - Inventory changes further illustrate economic volatility, with inventory contributing 2.6 percentage points to GDP growth in Q1 but detracting 3.2 percentage points in Q2 [6] Inflation and Economic Dynamics - The core PCE price index rose to 2.54% in Q2, exceeding market expectations, which has led to more conservative spending and investment behaviors among households and businesses [8] - The economic landscape in the first half of 2025 has been characterized by significant fluctuations, with contrasting trends in imports and inventory affecting market sentiment and analyst predictions [8] Emerging Sectors - Surprisingly, sectors such as AI and data centers have not emerged as engines of economic growth, with reduced investments in power plants and a slowdown in data center and IT investments [9] Employment and Income Relevance - For the general public, GDP figures are less relevant than personal employment and income, as the true impact of economic conditions is reflected in daily life [11]

Core Insights - The apparent growth in the US GDP for Q2 is misleading, primarily due to a significant drop in imports which artificially inflated the overall data, masking a clear slowdown in domestic demand [1][2][3] Economic Indicators - The US GDP grew at an annualized rate of 3.0% in Q2, surpassing market expectations of 2.5%, but this figure is heavily distorted by trade factors, with imports plummeting by 30.3% in Q2 after a 37.9% surge in Q1 [1][3] - Domestic private final purchases growth has sharply declined from 2.7% the previous year to 1.2%, indicating cooling internal economic activity [2][6] Consumer Spending - Final domestic sales growth in Q2 was only 1.1%, down from 1.5% in Q1, and significantly lower than projected growth rates of 3.4% in H2 2024 and 2.8% in H1 2024 [5] - While actual personal consumption increased from 0.5% in Q1 to 1.4% in Q2, it remains below 2024 levels, with durable goods consumption primarily supported by a 16.2% increase in auto sales [6] Investment Trends - Non-residential fixed investment growth significantly slowed in Q2, with construction investment declining by 10.3% following a 2.4% drop in Q1, and residential investment falling by 4.6% [7] - Business investment related to artificial intelligence was weaker than expected, with declines in power plant investments and a slowdown in data center and IT investments, contradicting many analysts' optimistic forecasts [7] Future Economic Outlook - Despite the better-than-expected Q2 GDP data, forecasts indicate a continued economic slowdown, with restrictive trade and immigration policies expected to outweigh benefits from fiscal policy and deregulation [9] - The core PCE price index rose to an annualized rate of 2.54% in Q2, indicating persistent price pressures [9]

Core Insights - The apparent growth in the US GDP for Q2 is misleading, primarily due to a significant drop in imports which artificially inflated the overall data, masking a slowdown in domestic demand [1][2][4] - Morgan Stanley's report indicates that the Q2 GDP grew at an annualized rate of 3.0%, surpassing market expectations of 2.5%, but this figure is heavily distorted by trade fluctuations [2][4] Domestic Demand and Consumption - The core indicator of domestic economic strength, private final domestic purchases, saw a sharp decline in growth from 2.7% the previous year to 1.2%, indicating a cooling in both household consumption and business investment [5] - Consumer spending showed a modest recovery, with actual personal consumption rising from 0.5% in Q1 to 1.4% in Q2, yet it remains significantly below 2024 levels [5] Investment Trends - Non-residential fixed investment growth significantly slowed in Q2, with construction investment declining by 10.3% following a 2.4% drop in Q1, and residential investment also fell by 4.6% [6] - Unexpectedly, business investment related to artificial intelligence underperformed expectations, with declines in power plant investments and a slowdown in data center and IT investments [6] Economic Outlook - Despite the better-than-expected Q2 GDP data, Morgan Stanley maintains a forecast of economic slowdown, predicting that the negative impacts of restrictive trade and immigration policies will outweigh the benefits from fiscal policy and deregulation [7] - The forecast for Q4 2025 shows a year-on-year growth rate of 1.0%, with 2026 growth expected at 1.1%, significantly lower than the strong performance anticipated in 2024 [7]