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Economic Data Review: Q2 2026
AI investment carries growth as the consumer pulls back
The Federal Reserve held the federal funds rate at 3.50 to 3.75 percent on June 17, the first meeting under new chair Kevin Warsh. With the quarter ending, the oil shock that pushed inflation above 4 percent in the spring is already fading, and the economy’s growth increasingly rests on one narrow source. Here is what the data show.
GDP
The Atlanta Fed GDPNow model tracks second-quarter growth at 2.5 percent, marked down through the quarter as the consumer weakened. Business investment is the offset, contributing 1.5 points, with equipment alone adding 0.8: the AI data-center buildout, where new orders for core capital goods are up 10.5 percent over the year. Economists estimate AI-related investment now accounts for an outsized share of all GDP growth. Much of the equipment is imported rather than built here, so the boom shows up as a drag on net exports and barely registers in factory payrolls. A BD Economics decomposition of GDP into its household-level drivers shows growth still resting on productivity, not on more workers.
| Indicator | As of | Latest | Year ago | Change |
|---|---|---|---|---|
| GDP nowcast (SAAR) | Jun 29 | 2.5% | — | — |
| CPI, all items (YoY) | May | 4.2% | 2.4% | +1.9 pp |
| Core PCE (YoY) | May | 3.4% | 2.8% | +0.6 pp |
| Fed funds rate | Jun 25 | 3.6% | 4.3% | -0.7 pp |
| Nonfarm payrolls, 12-month total | May | +503K | +890K | -43% |
| WTI crude oil | Jun 22 | $78.94 | $68.17 | +16% |
| Personal saving rate | May | 3.0% | 4.9% | -1.9 pp |
| Consumer sentiment (UMich) | Jun | 49.5 | 60.7 | -11.2 |
Labor market
The job market is steady but narrow. Payrolls added 503,000 over the past year and unemployment held near 4.3 percent, but recent gains leaned on a few sources, including health care, local government, and a summer lift from World Cup hospitality hiring, while manufacturing and federal employment shrank. Real median weekly pay is falling, down about 1 percent over the year.
Prices and wages
Headline inflation peaked in May at 4.2 percent on the CPI and 4.1 percent on PCE prices, almost entirely energy. Core measures stayed lower, with core PCE at 3.4 percent and trimmed-mean PCE at 2.4 percent, a reminder that the underlying inflation problem predates the oil shock. The shock is now reversing: oil has fallen to $79 a barrel from above $100 in the spring, gas dropped 12 percent in four weeks, and the Cleveland Fed nowcasts roughly zero inflation in June. Because the Fed held while prices rose, the real federal funds rate slipped to about negative 0.3 percent, even as its own projections turned toward a possible hike.
What to watch
The consumer, long the economy’s engine, is pulling back. The saving rate is 3 percent and real incomes are flat; spending has held up only because households are saving less, and sentiment sits near a record low. With inflation fading and growth concentrated in AI investment, the question for the second half is whether anything broad picks up the slack.
Sources: Atlanta Fed GDPNow, BLS, BEA, University of Michigan, EIA, Cleveland Fed, FRED. See the BD Economics US Chartbook and Indicators page for interactive versions of many of these series.
