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Second-quarter GDP growth upgraded to 3.3% paceInvestment in AI, consumer spending drive upward revisionWeekly jobless claims fall 5,000 to 229,000The US economy grew faster than initially thought in the second quarter, in part driven by business investment in intellectual property such as artificial intelligence, but tariffs on imports continued to cloud the outlook.The upgrade to gross domestic product reported by the Commerce Department on Thursday also reflected upward revisions to consumer spending as well as business investment in equipment. That resulted in a measure of underlying domestic demand also being revised higher. With the Federal Reserve focused on a softening labour market, economists expected the US central bank to resume cutting interest rates next month."I doubt this moves the needle for the Fed, but at the margin, these revisions work against the case for urgency to cut rates," said Stephen Stanley, chief US economist at Santander US Capital Markets.GDP increased at a 3.3% annualised rate last quarter, the Commerce Department's Bureau of Economic Analysis (BEA) said in its second estimate. The economy was initially reported to have grown at a 3.0% pace in the second quarter. Economists polled by Reuters had expected GDP growth would be raised to a 3.1% rate.The economy contracted at a 0.5% pace in the January-March quarter, which was the first GDP decline in three years.The manner in which President Donald Trump's administration has implemented the tariffs, including escalations and 90-day pauses, has muddied the waters, making it challenging to parse economic data. A front-loading of imports as businesses rushed to beat the duties pulled down GDP in the first quarter before snapping back as the flow of foreign merchandise ebbed.Neither first- nor second-quarter GDP readings are a true reflection of the economy's health because of the wild swings in imports. To get a better read of the economy, economists are focusing on the final sales to private domestic purchasers measure, which excludes trade, inventories and government spending.This measure, also viewed by policymakers as a barometer of underlying economic growth, increased at an upwardly revised 1.9% pace last quarter, matching the first quarter's pace.Domestic demand was initially estimated to have grown at a 1.2% rate. The revision reflected upgrades to consumer spending, the economy's main engine, which is now estimated to have increased at a 1.6% rate. That was up from the previously reported 1.4% pace.Business spending on intellectual property products grew at a 12.8% rate, double the initially estimated 6.4% pace."Investment related to AI is helping mask some of the weakness elsewhere in the economy, but the good news is that there is little sign that this support is set to fade anytime soon," said Ryan Sweet, chief economist at Oxford Economics.Growth in business investment in equipment was upgraded to a 7.4% pace from the 4.8% rate estimated last month.Still, economists expect a lacklustre second half, which would limit economic growth to about 1.5% for the full year because of tariffs. That reading would be down from 2.8% in 2024.The BEA also reported that profits from current production with inventory valuation and capital consumption adjustments rebounded $65.5bn last quarter. Profits decreased $90.6bn in the January-March period.But further increases are likely to be hampered by Trump's protectionist trade policy, which has raised the nation's average import duty to its highest level in a century, inflicting pain on companies ranging from retailers to manufacturers.Caterpillar this month warned tariffs could cost the economic bellwether up to $1.5bn this year.In July, General Motors' second-quarter earnings took a $1.1bn hit from the duties and the automaker anticipated more pain in the third quarter. Clothing retailer Abercrombie & Fitch on Wednesday warned that higher tariffs on countries such as Vietnam, Indonesia, Cambodia and India would increase costs by $90mn this year.Fed Chair Jerome Powell last week signalled a possible interest rate cut at the central bank's September 16-17 policy meeting, in a nod to rising labour market risks, but also added that inflation remained a threat.The Fed has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.News on the labour market remained mixed, with a report from the Labor Department showing initial claims for state unemployment benefits decreased 5,000 to a seasonally adjusted 229,000 for the week ended August 23. The labour market is stuck in a no-hire, no-fire mode due to tariffs.The number of people receiving benefits after an initial week of aid, a proxy for hiring, fell 7,000 to a seasonally adjusted 1.954mn during the week ending August 16, the claims report showed. The so-called continuing claims data covered the week during which the government surveyed households for August's unemployment rate.Continuing claims rose slightly between the July and August survey weeks, leaving some economists expecting the unemployment rate will rise to 4.3% in August from 4.2% in July.

The economic shock from the Iran war is no longer hypothetical. What the United Nations Development Programme modelled as a four-week disruption has already been overtaken by events, with the conflict now stretching into a fifth week and signalling that the projected $120bn to $194bn loss in Arab economic output may prove conservative.  When UNDP released its assessment on 31 March, it warned that even a short, contained escalation would shrink regional GDP by 3.7 to 6.0%, erase up to 3.64mn jobs, raise unemployment by as much as four percentage points, and push between 3.05mn and 3.96mn people into poverty. That scenario assumed temporary trade disruption, limited infrastructure damage and manageable energy shocks. None of those conditions now hold. The conflict has since expanded geographically and operationally, with sustained exchanges involving Iran and spillovers across the Levant and Gulf. Strategic assets, including energy and petrochemical infrastructure, have come under repeated pressure, while rising tensions around the Strait of Hormuz, through which roughly a fifth of global oil flows, have heightened market volatility. These developments align closely with UNDP's most severe scenario, which anticipated extreme trade disruption and hydrocarbon supply shocks.  That assessment is borne out by the data. Iran's strike on Qatar's Ras Laffan natural gas terminal wiped out 17% of the country's LNG export capacity, with repairs expected to take up to five years, according to state-owned QatarEnergy. The blow extends well beyond Qatar's balance sheet. Gita Gopinath, the former chief economist at the International Monetary Fund, has written that global economic growth, expected before the war to reach 3.3% this year, could fall by 0.3 to 0.4 percentage points if oil prices average $85 a barrel through 2026. Carmen Reinhart, a former World Bank chief economist now at Harvard Kennedy School, has warned that the conflict is "raising the risk of higher inflation and lower growth," reviving uncomfortable parallels with the stagflationary oil shocks of the 1970s.Nowhere are the risks more concentrated than in the Gulf. UNDP had projected that the GCC economies, including Qatar, Saudi Arabia and the United Arab Emirates, could see GDP contract by 5.2 to 8.5%, translating into losses of $103bn to $168bn. Oxford Economics has since downgraded aggregate GCC real GDP growth for 2026 by 4.6 percentage points from its pre-war forecast to minus 0.2%, reflecting reduced oil production, exports, tourism and domestic demand. Qatar, Kuwait, Bahrain and the UAE face the most severe downgrades, given their inability to reroute hydrocarbon exports, which means production will need to shut down once storage facilities reach capacity.  A Goldman Sachs economist forecast that if the war continues through the end of April it could shrink Gulf states’ GDP substantially. With energy infrastructure increasingly exposed and shipping routes under strain, the UNDP's upper-bound figures are now edging into view, if not beyond. The bloc could also lose up to 3.11mn jobs, with human development setbacks equivalent to one to two years of progress. In the Levant, where fragility was already entrenched, the impact is sharper still. GDP losses of up to 8.7% are now paired with a disproportionate surge in poverty, accounting for more than 75% of the region's projected increase in deprivation. The war's human toll, including displacement, disruption to education and healthcare, and damage to civilian systems, has compounded the economic shock, reinforcing UNDP's warning of a measurable decline in human development indicators. Inside Iran itself, the erosion is equally stark. UNDP estimates the country's human development index could fall by 0.47 to 0.56 percentage points, effectively wiping out one to one-and-a-half years of progress. With low-income households spending nearly 45% of their income on food, inflation and supply disruptions are rapidly translating into real hardship, particularly for informal workers and small businesses. The World Trade Organisation has said that if oil and gas prices remain elevated for the rest of the year, forecasted 2026 global GDP growth could be reduced by 0.3 per cent. Europe, as a heavy energy importer, could see growth fall by at least one percentage point below previous expectations. Beyond the immediate theatre, the fallout is rippling outward with particular severity through agricultural markets. The Gulf accounts for roughly a third of global urea exports and a quarter of ammonia, with up to 40% of world nitrogen fertiliser exports passing through the Strait of Hormuz. With that passage now blocked, urea prices are up 50% since the war began and ammonia prices have risen 20%. The downstream consequences for food security are acute. The countries of the Gulf region, home to more than 60mn people, are almost entirely import-dependent across staple food categories, meaning any sustained disruption to supply chains will rapidly translate into food shocks. Oxford Economics has modelled a scenario in which prolonged disruption tips the world into outright contraction, with world GDP falling in the middle of the year, calendar-year growth for 2026 slowing to 1.4% and global inflation reaching 7.7%, close to the 2022 peak. Unlike 2022, when the global economy continued to expand through the price shock, the severity of this disruption could tip the world into recession, which Oxford's analysts describe as the worst synchronised downturn in 40 years outside the pandemic and the global financial crisis. Taken together, these developments point to a fundamental shift in the nature of the crisis. What began as a geopolitical confrontation is now manifesting as a multi-layered development shock, affecting growth, employment, poverty and long-term human welfare simultaneously. The longer the conflict persists, the more it entrenches structural damage across interconnected systems, from energy markets to food security. UNDP's original warning was stark: even a brief war could reverse years of progress. Five weeks on, the trajectory suggests something deeper. The economic and human setback now under way is likely to exceed initial projections, with consequences that will endure well beyond the battlefield.