U.S. economy expanded at sluggish 1.5% pace in second quarter
Growth in gross domestic product — the nation’s output of a goods and services — decelerated from a 2.1 per cent pace from January through March, the Commerce Department reported Wednesday. The second-quarter growth number was unchanged from the department’s first estimate.
Still, consumer spending — which accounts for about 70 per cent of U.S. economic activity — increased at a healthy 3.4 per cent annual clip, up from 0.5 per cent in the January-March period.
The reason for the lackluster growth was imports. They are subtracted from growth because GDP is only supposed to count domestic production. Imports rose at a 12.5 per cent annual pace from April through June, partly due to a surge in shipments of computer chips and other products that support artificial intelligence investment, and sliced 1.64 percentage points off second-quarter growth.
Beyond the headline figures, the U.S. economy has proven surprisingly resilient in the face of fighting with Iran and the spike in energy prices it caused. Business investment, excluding housing, rose at a 8.5 per cent pace in the second quarter, reflecting the AI investment boom. And a measure of the economy’s underlying strength — which strips out volatile government spending and trade numbers — grew at a strong 4.2 per cent rate, up from 1.7 per cent in the first quarter.
Investment in housing rose, ticking up for the first time since the end of 2024. The housing market has been depressed by high mortgage rates,. (…)
The Commerce Department’s report showed that prices rose 3.7 per cent in July compared with a year earlier, but the pace was the same as June. Inflation has worsened since the U.S. and Israel attacked Iran in late February, when it stood at 2.9 per cent. It’s noticeably above the Fed’s target of two per cent.
But monthly data give a warning:
As for the American consumer, we saw first-hand what happens when the World Cup effect and the income tax refunds move into the rear-view mirror — real spending growth flattened in July in the weakest showing since last January and ranking in the worst three readings since February 2025.
For the first time since the turn of the year, the personal savings rate rose — to 3.0% from 2.6%, in a not-so-subtle change in behavior (towards frugality). (David Rosenberg)
Real spending on durable goods has flattened as prices rose (tariffs).
The Fed-favored PCE price index today shed a slightly different and more ominous light on inflation for July than the CPI had done earlier this month. Energy prices were still up 15% from a year ago, and food inflation accelerated slightly to 2.4%. But beyond energy and food, the “core” PCE price index suffered from inflation in core services, where over 60% of consumer spending goes, and from the AI boom that has begun to exact its pound of flesh from consumers.
The core PCE price index – which excludes energy and food – rose by 0.25% in July from June (3.0% annualized.
Year-over-year, it rose by 3.35%, same increase as in June. The last four months produced the worst increases since October 2023. (…)
The durable goods PCE price index jumped by 0.37% in July from June (+4.6% annualized) and by 3.4% year-over-year. (…)
Nvidia Reports Blowout Quarter, Says Demand for AI Chips Is Getting Even Hotter Shares rallied as the chip giant forecast 70% revenue growth next year and defended its financial support of AI companies
That is significantly better than the 45% growth that analysts polled by FactSet had predicted.
Paired with the chip giant’s quarter of blowout earnings that also came in well ahead of estimates, the forecast helped calm rising worries throughout the market over dizzying spending on AI infrastructure and the degree to which Nvidia has extended itself to help customers keep building data centers. (…)
Kress, the CFO, defended the strategy of using its balance sheet to help customers on the earnings call. Kress said Nvidia expects big frontier AI labs like OpenAI “to become the largest technology companies in history.”
These labs face a bottleneck, however, in accessing all the computing power they need to develop products and improve models, and that is why they need Nvidia’s financial help, Kress said.
“We recognize the scale of this support, and we know some will call this circular financing. We see it differently,” she said. “The equity returns on our invested capital will be excellent.”
“The big picture is that we’re going through this platform shift and it affects every computer company,” said Jensen Huang, Nvidia’s chief executive. “These will be some of the most consequential technology companies in history.” (…)
The company also guided expectations for gross profit margins lower over the next year, a significant change from previous quarters and a result, Kress said, of memory-chip prices rising faster than the company had predicted.
Next quarter, Nvidia’s gross margins are expected to fall from 75% to 74%, then to a range of 71% to 72% in the fiscal fourth quarter, before settling at around 72% to 73% after that, Kress said Wednesday. (…)
Nvidia would grow faster if it had access to more supplies, Chief Financial Officer Colette Kress said during a post-earnings conference call. “Incredibly, we are seeing demand acceleration even at our scale,” she said. “Customers’ forecasts point to our growth doubling next year.” (…)
In Nvidia’s second-quarter earnings report, Chief Executive Officer Jensen Huang said demand is only accelerating. He also touted the rollout of the company’s latest chip line, Vera Rubin.
“The AI infrastructure build-out is at full steam,” he said. “Vera Rubin, now in full production, was built to power exactly this moment.” (…)
At the same time, a stampede of would-be rivals is eyeing Nvidia’s lucrative market. And the company’s own customers are increasingly developing in-house chips, potentially reducing their reliance on Nvidia in the long run.
Just this week, ChatGPT maker OpenAI said its new Jalapeno processor performed better than Nvidia’s current lineup during [lab] testing. (…)
SemiAnalysis has more on Jalapeno:
In June, OpenAI unveiled the chip program in partnership with Broadcom, built from a blank slate exclusively for LLM inference. Design work began in the middle of 2024, going from initial team hiring to manufacturing tape-out in ~16 months, an extremely fast ASIC development cycle.
In general first generation chips are not competitive, but OpenAI bucks the trend by being industry leading and beating every Nvidia, AMD, and Google chip we have been able to test on multiple top open source models. OpenAI does this with extreme hardware software codesign. Surprisingly, OpenAI is not over specialization on any specific part of model inference, but instead by focusing on being a general chip that delivers high performance in all scenarios.
Everyone says that OpenAI’s chip is specialized for OpenAI models, but that’s wrong, OpenAI made a generalized chip for AI inference. (…)
A lot of the media coverage of this chip has followed a few throwaway comments from OpenAI that claim the chip will be optimized for their models in a way that other chips are not. This is wrong. Jalapeño is a generalized inference chip capable of running all sorts of models, and all sorts of workloads, including our benchmark InferenceX, where we ran the benchmark with OpenAI engineers in the lab.
Real world experience will confirm, but it seems Jalapeno is the first ASIC to directly compete with Nvidia’s chips “capable of running all sorts of models, and all sorts of workloads”.
- Nvidia’s $279 Billion Supply-Chain Gamble The AI chip leader is using its financial muscle to win the supply battle, but it comes with downsides
Nvidia said Wednesday that its commitments to suppliers to secure components for its AI chips and systems reached $279 billion in its latest quarter, more than doubling from $119 billion the previous quarter. (…)
The purchase commitments should help Nvidia corner a larger portion of the memory supply, even if higher prices weigh on its profit margins. (…)
“We have a really gigantic supply chain, and so we have incredible partners and we’ve secured a lot of supply,” Huang said Wednesday. “But we just need a lot more.”
While commitments can grease the wheels of a supply chain during a boom, they also serve as insurance for suppliers against an unexpected downturn in end demand. In such a scenario they can transform from being a strategic advantage for the company in the middle—in this case, Nvidia—into a painful liability.
That is precisely the situation that befell Cisco Systems in 2001. When the dot-com bubble burst, demand for Cisco’s networking gear plummeted, but it was still on the hook for commitments to its own suppliers. It was able to negotiate away some of them, but took a $2.2 billion inventory charge in a single quarter. (…)
Among them, Nvidia is providing a $105 billion backstop on an OpenAI data center lease and up to $125 billion of residual-value support as part of a $500 billion financing deal with Wall Street asset managers. It is also guaranteeing $36 billion in sales for cloud-computing companies it sells chips to, in exchange for revenue-sharing deals.
On top of these, Nvidia disclosed Wednesday that it has entered into data center lease agreements worth $20 billion that it expects to transfer to third parties. And it is providing “selective credit enhancement” for nearly two gigawatts of computing power to a “frontier AI lab” that isn’t OpenAI, Kress said. She didn’t quantify its value.
Frontier labs, Kress said, “are growing faster than what their balance sheets and credit profiles can support.”
It isn’t too hard to imagine a scenario where a bust squeezes Nvidia from multiple sides. Suppliers might pressure the company to pay up at the same time as financial commitments to suddenly less-eager customers come due. Declines in the value of Nvidia’s equity investments, many of which are in its own customers, would only deepen the profit impact.
No such scenario is likely any time soon, of course. Demand signals for Nvidia lately have been strong, including robust AI spending forecasts from big tech companies. Investors were cheered by Nvidia’s forecast of 70% higher revenue in its next fiscal year, sending its stock up in after-hours trading Wednesday.
Still, jitters have been growing about Nvidia’s risk-taking. Big-tech AI spenders are already projected to slow growth in outlays in the coming years. This helps explain why the company’s price-to-forward-earnings ratio has been hovering near a decade-long low recently.
Nvidia’s financing and supply-chain moves might help it grow faster now, but magnify its risk longer term. The stock, already a concentrated bet on AI, is only getting more so.
What Nvidia and Broadcom have been doing lately is to facilitate lab and data center financing, backstopping part of the overall debt through a residual value guarantee, making up the difference if the chips are worth less than lenders expect. The lenders bear the riskiest portion of debt but suppliers guarantee that their chips will not lose value beyond a certain level.
This confidence in older chip generations’ value is supported by CoreWeave’s experience:
(…) as we remain largely sold out of prior generations of NVIDIA GPUs in addition to the current SKUs. So as our earlier generation fleets roll off their original contract, they offer the potential to deliver strong returns in the subsequent years.
We are seeing this across our Ampere and Hopper fleet. As an example, we recently signed an [NVDA’s] A100 contract that extends into 2029 at an attractive price. As a reminder, this SKU was introduced in 2020…Pricing and margins for our Blackwell and Vera Rubin SKUs are setting new highs, while pricing for prior generation SKUs is at or above where it was years ago. Our near-term capacity remains effectively sold out.”
Greer Suggests US Needs to Consider Bans on Canadian Goods
(…) “Canada has banned the sale of liquor and spirits. We haven’t banned anything from Canada. You know, they’ve capped the type of autos we can bring in, they’ve banned certain goods and services from procurement in the provinces,” US Trade Representative Jamieson Greer said in an interview with Canadian Broadcasting Corp. on Wednesday. (…)
Like if a 50% tariff on anything is not a de facto ban…
This could turn even uglier if cooler heads don’t prevail. Greer is (or was) one of the few US officials with a cool head.
Carney is clearly defying Trump to protect Canada’s identity, dignity and sovereignty. What if other countries get on Canada’s bandwagon and elect to confront the bully?
Trump could take this war to the next level, to warn other countries not to “carney” him and undermine his whole tariff “strategy”.
What would China do if it becomes the US vs OECD countries? Would China allow the US to effectively control world trade?
What a mess!
China said it would monitor US actions related to tariffs for alleged overcapacity and may take countermeasures, underscoring lingering friction despite a trade truce.
Commerce Ministry spokesperson Huang Ling reiterated Beijing’s opposition to the investigation into China and other economies, saying Washington has launched the probe under the “pretext of overcapacity.”
“We will continue to closely monitor and comprehensively assess subsequent US actions and reserve the right to take all necessary measures,” Huang said at a regular press briefing on Thursday in response to a question about a possible US levy.
Bloomberg News reported earlier that the US is considering a 7.5% tariff on China following investigations into alleged excess capacity. The move would mark the latest step by US President Donald Trump to resurrect his protectionist trade agenda after the Supreme Court struck down his previous import taxes. It would also bring tariffs on China to a level Beijing said the two sides agreed to during previous trade talks.
Foreign Minister Wang Yi urged the US to put relations back on the “right track” during a meeting with Ambassador David Perdue on Wednesday, accusing Washington of introducing a series of “negative measures on unfounded grounds,” according to a Chinese statement.
The US and Canada should stop targeting each other with aluminum tariffs, according to industry groups representing producers of the metal in both countries, and instead forge a common front against Chinese competition.
Their comments came as the US and Canada escalated a trade dispute, with Washington maintaining a 50% tariff on Canadian aluminum and Ottawa retaliating with a 50% duty on US imports.
The groups warned that the fight risks undermining investment and disrupting one of North America’s most integrated supply chains. The US relies on imports for roughly 60% of its primary aluminum needs and Canada is by far its biggest foreign supplier.
Jean Simard, head of the Aluminium Association of Canada, called for a “Fortress North America” that would preserve free trade in aluminum within the region while erecting barriers against metal from non-market economies and cracking down on transshipment.
Even with new smelters and restarts, the US will remain dependent on imported primary aluminum, he said. “America cannot do it alone,” Simard said during a panel discussion at the CRU/AMU Aluminum Summit in Atlanta, Georgia, on Tuesday. (…)
The shifting trade regime is also making companies reluctant to commit capital, potentially complicating Washington’s push to rebuild domestic manufacturing. The uncertainty is making it harder for aluminum producers to commit to long-term investments, Johnson said. [Chuck Johnson is CEO of the US Aluminum Association]. (…)
“We’ve got to find a collective path forward as a region.” (…) Rather than putting up barriers against each other, the US and Canada should “work together to grow the pie,” Simard said.
President Donald Trump on Wednesday signed an emergency order that aims to keep some foreign-made transformers and other critical energy equipment out of the nation’s electric grids on national security grounds.
The directive comes amid mounting bipartisan concern that Chinese-manufactured components in the US power system could contain vulnerabilities that can be exploited by foreign adversaries. It also follows a series of cyberattacks on US water facilities that have underscored the extent to which the country’s critical infrastructure can be a target.
Trump’s order generally bars the US purchase, importation or installation of certain foreign-made, bulk-power system electrical equipment — and associated software — where it could pose cybersecurity or operational risks.
It also sets the stage for potentially new conditions on the continued use of already installed equipment to address risks. Trump’s directive permits the energy secretary to impose those restrictions as necessary, while bearing in mind potential consequences to reliability and safety.
In signing the executive order, Trump warned of “certain foreign actors” who are “increasingly creating and exploiting vulnerabilities in the United States bulk-power system.”
“The rapid growth of advanced manufacturing, data centers, artificial intelligence, and defense production has increased the Nation’s dependence on abundant, reliable electricity and magnified the consequences of a successful attack or supply disruption on the bulk-power system,” Trump said in the directive.
The move could benefit domestic electric equipment manufacturers and companies such as SolarEdge Technologies Inc., Enphase Energy Inc. and Tesla Inc.
According to the International Energy Agency, China accounts for roughly 80% of the world’s battery and solar inverter manufacturing capacity. And scores of Chinese large power transformers have been imported into the US over the past decade, according to a 2020 Commerce Department investigation. (…)
The equipment ban collides with existing strains in the supply of critical electric system components and could exacerbate already long waits for some gear. (…)
Concerns have escalated alongside the increasing deployment of grid-connected equipment, as modern solar inverters, battery-management systems and other gear now generally are able to be monitored and controlled remotely. That raises new potential vulnerabilities to cyberattacks, feeding fears that foreign adversaries could exploit weak points in the devices.
Democratic and Republican lawmakers previously have singled out Huawei Technologies Co. as a particular concern.
In April, the US government’s Cybersecurity and Infrastructure Security Agency warned of potential Iranian-backed cyberattacks that might target infrastructure.
Canada Poaches International Researchers, Drawing Most from US
Canada has awarded 64 global scholars with C$504 million ($362 million) in funding to relocate their work to Canadian universities and advance projects in priority areas such as health and artificial intelligence.
A list obtained by Bloomberg News shows 48 of the researchers were poached from the US, including at elite institutions such as Harvard University and Massachusetts Institute of Technology. The other 16 researchers are coming from 12 other countries, including the UK, Germany, China and Japan.
Canada’s effort to poach top research talent contrasts with recent US federal funding cuts that, combined with tightening immigration policies and clashes between the Trump administration and top-tier universities, have led some researchers to look for opportunities elsewhere. (…)
Other major world economies are also seeking to attract top talent open to shifting outside the US. The European Union has also launched its own €500 million ($583 million) initiative to attract global researchers and scientists. (…)
Think Treasurys Are Having a Rough Summer? It’s Even Uglier Abroad. Countries with large debt burdens—France, Italy, the U.K., Japan—have come under the heaviest pressure in recent months
Global debt has surpassed $350 trillion, according to the Institute of International Finance, or about 305% of global gross domestic product. Governments in advanced economies alone are expected to borrow $18 trillion this year, according to the OECD, and are increasingly competing for buyers with stocks and bonds issued by U.S. tech companies. (…)
“Everybody is testing which countries will yield first to bond vigilantes’ pressure,” he said, referring to the idea that bond investors hold profligate borrowers to account.
Moves in the U.S. Treasury market often have global spillovers. U.S. government bonds remain the backbone of the global financial system and set the baseline for a range of investments.
But other factors have exacerbated the selloff: inflation worries driven by the continuing war in Iran and questions over central banks’ willingness to fight it; political volatility; and a retreat by once-reliable bond buyers like pension funds and insurers in many countries. (…)
The World’s Mountains Are Ticking Time Bombs
From the Apostle Paul to Ira Gershwin, mountains have for millennia been a symbol of immovable stability. A warming planet is undermining that, leaving landslides, floods, and avalanches in its wake.
The apocalyptic scenes after Wednesday’s flash floods on the border between Nepal and China’s Tibet region are the latest example of the devastation that can result. At least 157 people have been confirmed dead and hundreds more are missing after a wall of mud and rock swept through valleys in the Himalayas, causing the Trishuli river to rise nine meters (30 feet) in half an hour.
Preliminary investigations suggest that a slide of ice and rock unleashed a surge of water, debris and boulders downstream. (…)
You might be tempted to dismiss the significance of climate change in all this. Individual heatwaves, cold snaps and extreme rainfall events can be linked to global warming with high confidence these days using weather-attribution science. The same influence can be traced in droughts and wildfires, though with less certainty. Landslides and their associated floods, however, can result from such complex chains of failure in once-stable ground that the signal of global warming gets lost amid the noise.
That may be the case for individual events. But the broad backdrop is exceptionally clear, because the crucial component that holds together many high-altitude landscapes isn’t granite, schist or limestone: It’s ice.
Nearly a quarter of the land area of our planet lies beneath ice sheets or within permafrost regions — places at high latitudes or altitudes where the earth remains frozen from one year to the next and ice acts as a kind of glue binding soil and rock together. As temperatures rise that frozen structure weakens, threatening a sudden collapse like snow sliding off a ski chalet roof in spring.
This is now happening to mountain terrain on four continents. When permanent ice disappears, steep slopes can give way under their own weight. Repeated cycles of freezing and thawing make the process more destructive. Water penetrates deep into cracks before crystallizing, gradually wedging the rock apart and driving deeper with each seasonal cycle. (…)
The evidence of accelerating instability is mounting. In records dating back to 1950, eight of the 10 worst years for glacier ice losses have occurred since 2016. Above 3,000 meters in the eastern Himalayas, landslides are now displacing five times more material than they were in the 1980s. The frequency of glacial lake outburst floods, a particularly damaging disaster where the dam impounding melted water from a glacier gives way suddenly, grew almost three-fold between the 1990s and the 2010s. (…)
The damage isn’t confined to Asia, either. Glacial outburst floods have become an annual threat to Alaska’s capital, Juneau, with the last surging through just weeks ago. At the exclusive Swiss ski resort of Zermatt, a new $630 million hydropower dam has been designed in part to shield the town as the Gorner glacier melts. Worldwide, about 15 million people live in regions at risk of glacial lake floods.
There is no sign that the world is working to curb our emissions with anything like the urgency required to avert this calamity. In Europe, where summer heatwaves have caused more than 30,000 excess deaths, politicians are now treating climate as a toxic issue, while companies abandon net zero targets. India, home to the largest population at risk from mountain flooding, is likely to add more emissions to the atmosphere than any other country over the coming decade. The US is dismantling policies intended to shrink its own carbon footprint.
Unlike the disintegration of highland slopes, these political acts are choices, not forces of nature. Mountains may be moving beneath our feet. That is no excuse for those in power to stand still.
