US economic growth slowed to a 1.5% annual pace in the second quarter as weaker government spending, investment and exports outweighed stronger consumer spending.
US economic growth slowed to a 1.5% annual pace in the second quarter, the Commerce Department said, marking an unexpected cooling in the US economic growth picture even as consumer spending stayed solid. The figure was down from 2.1% in the first three months of the year and came in below the roughly 2% pace analysts had expected.
The report showed that weaker government spending, investment and exports pulled down overall growth. That drag outweighed the boost from consumer outlays, which rose at a 3.2% annual rate last quarter after easing to 0.5% earlier this year. Because consumer spending makes up more than two-thirds of US economic activity, that strength mattered, even as the broader economy lost momentum.
Household demand held up despite prices rising 3.5% in the year to June. Surveys showed Americans were still buying motor vehicles, especially light-duty trucks, along with furniture and prescription drugs. That resilience suggests many families are still spending even with higher costs pressing on budgets.
The slowdown comes as the economy continues to absorb the financial effects of the war with Iran and as businesses deal with tariffs. It also lands alongside fresh signs of strain in the inflation picture. The Federal Reserve held interest rates steady for a fifth straight time on Wednesday, with new chairman Kevin Warsh saying there was no “magic wand” for bringing prices down.
“US economic growth slowed to a 1.5% annual pace in the second quarter as weaker government spending, investment and exports outweighed stronger consumer spending.”
Inflation has stayed above the Fed’s 2% target for more than five years, and the central bank said economic activity was expanding at a “solid pace despite uncertainty caused by the conflict in the Middle East.” But the conflict has helped push oil prices higher again, and Brent crude was about $90 a barrel on Thursday. Average gasoline prices were back above $4 a gallon, a level that quickly hits commuting and household budgets across the country.
Economists offered a more measured read than the headline slowdown suggested. Michael Pearce of Oxford Economics said the data underplayed the strength of the US economy and predicted growth would move back above 2% later this year. He said investment outside the AI boom appeared to be improving, while AI-related investment remained the biggest force in the market, even if imports of microchips used in its development limited its boost to growth.
Bradley Saunders of Capital Economics made a similar point, saying the numbers “seriously undersell a healthy economy.” He said households had absorbed the hit from higher fuel prices and largely kept going. Separately, the Personal Consumption Expenditures Price Index, a key inflation measure watched closely by the Fed, rose 3.7% on Thursday. For American families, the message is straightforward: growth is still positive, but higher prices and energy costs are making every dollar work harder.
Frequently asked questions
How much did US economic growth slow in the second quarter?
It slowed to a 1.5% annual pace, down from 2.1% in the first quarter and below analysts’ expectations.
What kept the economy from slowing even more?
Consumer spending rose at a 3.2% annual rate, and since it makes up more than two-thirds of US economic activity, it helped support growth.
What factors dragged down growth?
Weaker government spending, investment, and exports pulled down overall growth and outweighed the boost from consumer outlays.
How are inflation and energy prices affecting households?
Inflation remained above the Fed’s 2% target, the PCE price index rose 3.7%, Brent crude was about $90 a barrel, and average gasoline prices were back above $4 a gallon.
We value your privacy 🍪We use cookies for essential features and, if you allow it, to send you a notification whenever we publish a new story. See our Privacy Policy.
📨
Never Miss a Story
Get the headlines that matter delivered straight to your inbox.
📱 On iPhone: tap the Share icon, choose “Add to Home Screen”, then open TheTrueDefender from your Home Screen and tap 🔔 to turn on notifications. (Apple only allows notifications for saved web apps.)
📱 Add TheTrueDefender to your home screen for one-tap access.
