Trump is the biggest threat to a fragile America

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The US economy is being held up by the massive investment in artificial intelligence and spending by high-income households. The war in the Middle East, however, poses an increasing threat to its underlying vulnerabilities.

US Commerce Department data late last week showed the economy grew at an annual rate of 2 per cent in the March quarter, slightly below expectations of 2.2 to 2.3 per cent growth.

More than half that relatively modest growth, however, came from business spending, which reflects the enormous spending by the AI companies. The “hyperscalers” – the biggest tech companies, like Meta, Amazon, Microsoft and Google – are expected to invest about $US750 billion ($1.04 trillion) in AI and its infrastructure this year.

Consumer spending held up – personal consumption spending grew 1.6 per cent in the quarter –but that is largely due to high-income families that have benefited from the wealth effects of a booming sharemarket.

Research released by the New York Federal Reserve Bank on Friday showed that, since the pandemic ended, spending by high-income households has grown at a cumulative real rate of 7.6 per cent. Spending by low-income households has risen by just over 1 per cent.

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It’s a “K-shaped” economy, with middle and lower income households now tapping their savings, with the US savings rate at its lowest since late 2022, during the worst of the post-pandemic global supply chains shocks.

The period covered by last week’s data, which is subject to what are often large-scale revisions, includes only one month of the war in Iran, which has sent oil prices – and subsequently gasoline and diesel prices – soaring around the world.

Before the US and Israel attacked Iran, and before Iran’s retaliation closed the Strait of........

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