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Consumer spending is the chief reason the U.S. economy is gathering steam. Household purchases account for roughly 70% of gross domestic product, and consumers kept spending through policy uncertainty, energy-price shocks and geopolitical stress. In the latest quarterly data, real GDP grew at a 2.2% annual pace in 2026’s second quarter, while consumer spending accelerated sharply.
An AI-led investment cycle, stronger productivity and fiscal support are reinforcing that demand. The expansion is real, but it is uneven: affluent households benefiting from stock-market and housing wealth are supporting spending, while lower- and moderate-income families face rising delinquencies, a softer hiring environment, expensive housing and inflation still above the Federal Reserve’s 2% objective.
What is driving U.S. economic growth right now?
The main engine is resilient household demand. Business investment tied to artificial intelligence is adding a second source of momentum, while productivity gains and recent tax-and-spending legislation provide additional support.
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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Commerce Department estimates reported by The Associated Press show that the economy’s underlying domestic demand grew at a 4.6% annualized rate in 2026 Q2. That measure captures demand from households and businesses inside the country and helps explain why headline growth remained firm even as some sectors weakened.
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| Indicator | 2026 Q2 reading | Source and qualification |
|---|---|---|
| Real GDP | 2.2% annualized growth | U.S. Commerce Department estimate reported by The Associated Press in 2026 |
| Consumer spending | 3.8% annualized growth | U.S. Commerce Department estimate reported by The Associated Press in 2026 |
| Business investment excluding housing | 9% annualized growth | U.S. Commerce Department estimate reported by The Associated Press in 2026 |
| Underlying domestic demand | 4.6% annualized growth | U.S. Commerce Department measure reported by The Associated Press in 2026 |
How much are consumers contributing?
Consumers remain the economy’s largest single source of demand. Spending growth accelerated from just 0.7% annualized in the first quarter of 2026 to 3.8% in the second quarter. Richmond Federal Reserve President Tom Barkin summarized the mechanism this way: “A big part of the answer lies with the consumer. Consumer spending makes up nearly 70 percent of GDP and despite the turmoil, consumers have kept spending.”
The aggregate figure conceals a widening difference between households. A strong stock market and rising housing wealth have supported affluent consumers, who have more capacity to maintain discretionary spending. That wealth effect does not reach households equally, so a robust consumption number can coexist with financial pressure for families without substantial assets.
Is AI investment powering the economy?
AI is an important accelerator, but it is working through investment and productivity rather than replacing consumer demand as the primary engine. Business investment excluding housing rose 9% at an annualized rate in 2026 Q2; The Associated Press linked much of that increase to the AI investment boom.
The Treasury Department’s advisory committee also identified AI adoption as a possible contributor to high productivity growth in the second and third quarters of 2025. Higher productivity allows businesses to produce more with the same resources, which can support profits, wages and output. The evidence does not establish that every investment project will pay off, however.
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Michael Pearce, chief U.S. economist at Oxford Economics, cautioned: “The economy is increasingly reliant on AI gains and the corresponding wealth effects boosting higher-income households’ spending power to fuel recent growth. The economy remains sensitive to a sudden reversal of optimism on AI.” A pullback in AI-related valuations or capital spending could therefore affect both business investment and the household wealth effect supporting consumption.
How do productivity and fiscal policy add support?
The International Monetary Fund reported 2.2% fourth-quarter-over-fourth-quarter growth in 2025 and attributed the result in part to strong productivity growth. “Fourth-quarter-over-fourth-quarter” compares the final quarter of one year with the final quarter of the previous year, rather than averaging all four quarters.
The IMF estimated that tax and spending legislation enacted in 2025 would add about 0.75% to the level of GDP across 2026–27. The same measures were estimated to increase the near-term federal deficit by roughly 1.5% of GDP. The policy can therefore lift demand in the short run while adding to fiscal pressure.
The administration’s 2026 Economic Report said 2025 growth was supported by strong business fixed investment, solid consumer spending and positive exports. Residential investment fell, showing that the expansion is not broad-based across every component of GDP.
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Why does the economy look strong when many people feel worse off?
The answer is a K-shaped expansion: aggregate output and spending can rise while household experiences diverge. Federal Reserve Governor Lisa Cook described the economy as broadly resilient but said low- and moderate-income households were experiencing worsening delinquencies and weaker financial conditions.
Hiring has slowed, housing remains constrained by high mortgage rates and inflation is still above the Federal Reserve’s 2% objective. Households may therefore see higher prices, tighter credit or fewer job opportunities even when national GDP is increasing. Asset-owning households can continue spending from wealth gains, making the overall data look stronger than the situation faced by families living mainly on wages.
Cook said: “Broadly, I see the U.S. economy as continuing to be resilient, with recent data indicating that growth in the second half of 2025 was even stronger than previously forecast.” Her assessment describes the national total, not an equal improvement in every income group.
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What do current forecasts say?
Forecasts point to continued growth, but they differ by publication date and methodology. The Congressional Budget Office’s September 2025 baseline projected 1.4% growth in 2025 and 2.2% in 2026. Kiplinger forecast approximately 2.5% GDP growth for 2026 and expected recent tax changes to produce an additional $65 billion to $100 billion in tax refunds.
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| Forecast or estimate | Figure | Important context |
|---|---|---|
| IMF 2025 growth | 2.2% q4/q4 | Reported in 2026; linked partly to productivity |
| CBO September 2025 baseline | 1.4% for 2025; 2.2% for 2026 | Baseline warned that tariffs and slower immigration could restrain demand |
| Kiplinger 2026 forecast | About 2.5% GDP growth | 2026 forecast; not a Commerce Department estimate |
| Expected additional refunds | $65 billion–$100 billion | Kiplinger estimate tied to recent tax changes |
These projections should not be read as contradictory measurements. A forecast is an estimate made before all quarterly data are available, while the Commerce Department figure is a subsequent reading that can still be revised.
Could tariffs, inflation or an AI reversal stop the recovery?
Several risks could weaken momentum or make it less evenly distributed:
- Tariffs: The CBO warned that tariffs could restrain demand. Higher import costs can also squeeze household purchasing power and business margins.
- Slower immigration: The CBO identified slower immigration as another potential drag on demand. A smaller labor-force increase can limit both employment growth and production capacity.
- Persistent inflation: Inflation above the Federal Reserve’s target can delay interest-rate relief and keep borrowing costs, including mortgage rates, elevated.
- Labor-market cooling: Slower hiring and worsening delinquencies would put pressure on the consumer engine that currently supports most GDP.
- AI or asset-market reversal: If expectations for AI productivity gains or related profits fall suddenly, companies could reduce investment and households could lose part of the wealth effect supporting spending.
The risks can reinforce one another. For example, weaker hiring would hit households directly, while an AI investment pullback would affect business demand and the asset prices that have supported higher-income consumers.
What should readers watch next?
To judge whether the expansion is broadening or merely continuing on its current narrow base, watch several indicators together:
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- Whether consumer spending remains firm among households without large stock or housing gains.
- Whether business investment stays strong outside AI-related projects.
- Hiring, delinquency and household-credit data for signs that financial stress is spreading.
- Residential investment and mortgage conditions, which have already been a weak spot.
- Inflation progress toward the Federal Reserve’s 2% objective.
- Evidence that productivity gains persist rather than relying entirely on optimistic AI valuations.
For now, the clearest explanation is straightforward: consumers are still spending, and AI-related investment, productivity and fiscal policy are amplifying that demand. The economy is gathering steam, but its durability depends on whether those gains reach more households and whether the AI-led investment cycle avoids a sharp reversal.
Frequently Asked Questions
What does “annualized growth” mean in the GDP figures?
An annualized quarterly rate assumes the quarter’s pace would continue for four quarters; it is not the amount the economy literally grew over the entire year. This convention makes quarter-to-quarter momentum easier to compare, but it can magnify a temporary surge or slowdown.
Why can GDP estimates and forecasts for the same year differ?
Forecasts are produced before complete quarterly data and are based on assumptions about policy, trade, inflation and household behavior. Official estimates arrive later and may be revised as additional information becomes available, so the two figures answer different timing questions.
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What would make growth less dependent on AI and wealth effects?
A broader expansion in wages, hiring, housing construction and non-AI business investment would spread demand across more households and industries. That diversification would reduce the impact of a decline in technology valuations or a pullback by affluent consumers.
What is the practical meaning of the IMF’s 0.75% GDP estimate?
It refers to the estimated addition to the economy’s overall GDP level during 2026–27, not a 0.75-percentage-point increase in the annual growth rate each year. The estimate also comes with a larger near-term deficit, so the demand boost has a fiscal trade-off.
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