Why the US economy is holding together and what breaks once it doesn’t
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The US economy has recently taken hits that would have stalled most developed systems.
Tariffs were announced and withdrawn, then reintroduced. Trade relationships were tested.
Government spending surged while policy direction changed repeatedly.
But despite all that, growth stayed firm and markets kept moving higher. The US President argues that’s a sign of hidden strength.
But a closer look might say that’s a sign that the economy is being supported in very specific ways that are easy to misunderstand.
Why the numbers still look strong
Recent headline data has been difficult to argue with. Real GDP growth in the second half of 2025 came in at 4.4% annualised pace according to the Bureau of Economic Analysis.
The unemployment rate decreased in December 2025, and nominal incomes continued to rise.
At the same time, equity markets hovered near record levels, as many investors perceive this combination as a signal of durability.
However, the details tell a different story. And that story is that the growth of the US economy is being carried by a small number of inputs rather than broad demand.
These inputs are powerful enough to keep the aggregate data elevated, although they do not reinforce each other.
They also fade quickly once conditions change.
How AI spending props up growth
The single most important support has been capital spending linked to artificial intelligence.
Data centres, chips, servers and related construction have absorbed hundreds of billions of dollars.
The St. Louis Federal Reserve estimates that AI related investment accounted for a meaningful share of US growth in 2025, even though it came from a narrow group of firms.
This spending is real and productive in the short term. It creates jobs and demand across construction and equipment.
However, it is concentrated and discretionary. Outside of AI, private investment has not surged.
In several quarters, total private investment was flat once inventory effects were included.
This tells us that the economy is not accelerating across the board; it is leaning on one engine that is running hot while others remain idle.
Inventories hiding pressure
Another reason growth has looked better than expected comes from inventories.
Companies built stock earlier in anticipation of supply disruptions and tariff risk. Over the past year, many have sold that stock instead of replacing it.
In GDP accounting, selling inventory supports current output. Rebuilding inventory shows up later.
The BEA reported that private inventory investment subtracted from growth in recent quarters, even as final sales looked solid.
This process delays the impact of higher import costs. Older inventory was bought at lower prices.
Once it is gone, replacement costs rise. Margins get squeezed, or prices move higher.
Inventory data suggests some of the tariff impact is postponed rather than avoided.
Trade strength that is not what it seems
Trade figures have also helped the headline story. Imports declined in several recent months and exports increased.
Since imports subtract from GDP, this mechanically lifts growth.
This is significant because a large share of export growth came from precious metals.
BEA trade tables show non-monetary gold and other precious metals contributing billions of dollars to export gains in late 2025.
Prices rose sharply, and volumes increased as foreign buyers moved assets into financial hubs.
Energy and defence exports also contributed. Traditional manufacturing exports did not surge in the same way.
Selling gold at higher prices improves the trade balance on paper. It does not reflect stronger industrial competitiveness.
Consumers are spending, but not evenly
Consumer spending remains the largest contributor to US growth.
On the surface, this suggests confidence, but beneath it, US household spending is uneven and increasingly non-discretionary.
Research from the Dallas Federal Reserve shows that high-income households account for a growing share of consumption growth.
Asset appreciation rather than wage gains explains much of this. Lower-income households remain constrained.
Healthcare spending has played an outsized role, with CMS data showing health and pharmaceutical spending rising rapidly.
An ageing population, expensive new drugs and insurance uncertainty all push spending higher.
This supports GDP because healthcare is costly and difficult to postpone. It does not signal optimism about the future.
Some high income households are also stretching. Delinquencies among affluent borrowers have begun to rise.
That behaviour supports demand today while increasing vulnerability later.
The dollar as a silent support
Finally, the dollar has weakened against major currencies over the past year, which sparked fears over the “Sell America” trade once again.
The point is that a softer dollar lifts nominal GDP, supports exports and inflates asset prices in dollar terms.
It also raises import prices and pushes inflation pressure forward.
This currency move helps explain why US assets have outperformed in local terms while appearing flatter in foreign currency terms.
It also explains why trade data looks better than underlying volumes suggest.
Ultimately, the US dollar is simply no longer providing a free tailwind to US returns.
What holds and what gives
Taken together, the economy is being supported by AI investment, inventory drawdowns, asset-driven exports, wealth concentrated consumption and currency effects. Each works on its own. None guarantees durability.
If these supports fade, the most likely outcome is not a sudden collapse. Inflation stays above target as tariffs and service costs filter through.
Equity returns disappoint as valuations compress rather than earnings collapse. The dollar loses its automatic advantage, and global diversification starts to make sense again.
Growth becomes harder to read as short-term data swings reflect timing effects rather than trend.
For the time being, the system is kept upright by forces that buy time rather than build balance.
But when those forces weaken, the economy simply stops feeling as resilient as the numbers once suggested.
The post Why the US economy is holding together and what breaks once it doesn’t appeared first on Invezz
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Why the US economy is holding together and what breaks once it doesn’t
Share:
The US economy has recently taken hits that would have stalled most developed systems.
Tariffs were announced and withdrawn, then reintroduced. Trade relationships were tested.
Government spending surged while policy direction changed repeatedly.
But despite all that, growth stayed firm and markets kept moving higher. The US President argues that’s a sign of hidden strength.
But a closer look might say that’s a sign that the economy is being supported in very specific ways that are easy to misunderstand.
Why the numbers still look strong
Recent headline data has been difficult to argue with. Real GDP growth in the second half of 2025 came in at 4.4% annualised pace according to the Bureau of Economic Analysis.
The unemployment rate decreased in December 2025, and nominal incomes continued to rise.
At the same time, equity markets hovered near record levels, as many investors perceive this combination as a signal of durability.
However, the details tell a different story. And that story is that the growth of the US economy is being carried by a small number of inputs rather than broad demand.
These inputs are powerful enough to keep the aggregate data elevated, although they do not reinforce each other.
They also fade quickly once conditions change.
How AI spending props up growth
The single most important support has been capital spending linked to artificial intelligence.
Data centres, chips, servers and related construction have absorbed hundreds of billions of dollars.
The St. Louis Federal Reserve estimates that AI related investment accounted for a meaningful share of US growth in 2025, even though it came from a narrow group of firms.
This spending is real and productive in the short term. It creates jobs and demand across construction and equipment.
However, it is concentrated and discretionary. Outside of AI, private investment has not surged.
In several quarters, total private investment was flat once inventory effects were included.
This tells us that the economy is not accelerating across the board; it is leaning on one engine that is running hot while others remain idle.
Inventories hiding pressure
Another reason growth has looked better than expected comes from inventories.
Companies built stock earlier in anticipation of supply disruptions and tariff risk. Over the past year, many have sold that stock instead of replacing it.
In GDP accounting, selling inventory supports current output. Rebuilding inventory shows up later.
The BEA reported that private inventory investment subtracted from growth in recent quarters, even as final sales looked solid.
This process delays the impact of higher import costs. Older inventory was bought at lower prices.
Once it is gone, replacement costs rise. Margins get squeezed, or prices move higher.
Inventory data suggests some of the tariff impact is postponed rather than avoided.
Trade strength that is not what it seems
Trade figures have also helped the headline story. Imports declined in several recent months and exports increased.
Since imports subtract from GDP, this mechanically lifts growth.
This is significant because a large share of export growth came from precious metals.
BEA trade tables show non-monetary gold and other precious metals contributing billions of dollars to export gains in late 2025.
Prices rose sharply, and volumes increased as foreign buyers moved assets into financial hubs.
Energy and defence exports also contributed. Traditional manufacturing exports did not surge in the same way.
Selling gold at higher prices improves the trade balance on paper. It does not reflect stronger industrial competitiveness.
Consumers are spending, but not evenly
Consumer spending remains the largest contributor to US growth.
On the surface, this suggests confidence, but beneath it, US household spending is uneven and increasingly non-discretionary.
Research from the Dallas Federal Reserve shows that high-income households account for a growing share of consumption growth.
Asset appreciation rather than wage gains explains much of this. Lower-income households remain constrained.
Healthcare spending has played an outsized role, with CMS data showing health and pharmaceutical spending rising rapidly.
An ageing population, expensive new drugs and insurance uncertainty all push spending higher.
This supports GDP because healthcare is costly and difficult to postpone. It does not signal optimism about the future.
Some high income households are also stretching. Delinquencies among affluent borrowers have begun to rise.
That behaviour supports demand today while increasing vulnerability later.
The dollar as a silent support
Finally, the dollar has weakened against major currencies over the past year, which sparked fears over the “Sell America” trade once again.
The point is that a softer dollar lifts nominal GDP, supports exports and inflates asset prices in dollar terms.
It also raises import prices and pushes inflation pressure forward.
This currency move helps explain why US assets have outperformed in local terms while appearing flatter in foreign currency terms.
It also explains why trade data looks better than underlying volumes suggest.
Ultimately, the US dollar is simply no longer providing a free tailwind to US returns.
What holds and what gives
Taken together, the economy is being supported by AI investment, inventory drawdowns, asset-driven exports, wealth concentrated consumption and currency effects. Each works on its own. None guarantees durability.
If these supports fade, the most likely outcome is not a sudden collapse. Inflation stays above target as tariffs and service costs filter through.
Equity returns disappoint as valuations compress rather than earnings collapse. The dollar loses its automatic advantage, and global diversification starts to make sense again.
Growth becomes harder to read as short-term data swings reflect timing effects rather than trend.
For the time being, the system is kept upright by forces that buy time rather than build balance.
But when those forces weaken, the economy simply stops feeling as resilient as the numbers once suggested.
The post Why the US economy is holding together and what breaks once it doesn’t appeared first on Invezz
In This News
Coins
$ 0.000067
-9.30%Share:
In This News
Coins
$ 0.000067
-9.30%Share:
Read More
Commodity wrap: gold, silver stage massive rebound; copper surges 4%