UBS Weekly: A Bumpy Second Half for the US Economy

UBS expects a bumpy second half for the US economy as the transmission of restrictive monetary policy remains highly uneven. Growth is increasingly dependent on AI and technology-related investment alongside equity wealth effects, while housing, non-AI equipment, non-residential structures, and lower-income households face significant pressure.

Over the past four quarters, non-residential structure investment fell approximately 5.9%, residential investment declined 5.5%, and non-AI equipment investment dropped 4.9%. Conversely, software investment surged 14.1% and information processing equipment soared 23.5%, highlighting stark sectoral divergences. High-income households hold abundant cash and equity wealth, whereas lower-income cohorts possess below-average liquid assets and consume faster than their income growth.

The report notes that the Social Security trust fund depletion has been pulled forward to late 2032, potentially triggering a 22% benefit cut. This shifts a long-term actuarial issue into an immediate fiscal challenge for the next presidential term. Meanwhile, upcoming BEA methodological adjustments to PCE prices could revise down headline and core PCE inflation by roughly 21 and 23 basis points, respectively. Furthermore, June payroll growth slowed to 57K, with the unemployment rate dropping to 4.19% solely due to a sharp labor force participation decline to 61.5%. UBS concludes that while US growth persists, its narrowing concentration in AI and wealth leaves markets highly vulnerable to single data point shocks.

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