US economy slows as GDP growth slips to 1.5%, consumers keep momentum alive

Strong consumer spending and steady business investment helped cushion the US economy in the second quarter, but a surge in imports dragged overall growth to its slowest pace this year, even as inflation showed further signs of easing.Data released by the commerce department on Thursday showed that the world’s largest economy grew at an annual rate of 1.5% between April and June, slowing from 2.1% in the first quarter and coming in below economists’ expectations.Household spending remained the biggest support for the economy during the quarter. Consumer spending, which accounts for about 70% of US economic activity, accelerated sharply to a 3.2% annual pace from just 0.5% in the January-March period.A broader measure of the economy’s underlying strength also pointed to resilience. Excluding the volatile effects of government spending and trade, the economy expanded at a 3.9% annual rate, improving from 1.7% in the previous quarter.Businesses also continued to invest despite slower headline growth. Investment outside the housing sector increased at an annual pace of 8.4%, down from 10.6% in the first quarter but remaining strong, reflecting a surge in artificial intelligence-related investment.Imports emerge as the biggest dragThe biggest drag on growth came from imports, which climbed at an annual rate of 11.5%. Increased shipments of computer chips and other products supporting AI investment contributed to the rise. Because GDP measures only what is produced within the United States, imports are deducted from the calculation, reducing second-quarter growth by 1.5 percentage points.“The consumer rescued the quarter,” said Olu Sonola, head of US economics at Fitch Ratings. “AI investment remains a powerful growth story, but the import surge underpinning the buildout is a reminder that an AI boom does not automatically translate into an equally large boost to US GDP.”Inflation eases but stays above targetAlongside the GDP figures, the commerce department reported that inflation continued to cool in June, although it remained above the Federal Reserve’s target.The personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, rose 3.7% from June 2025, easing from a 4.1% year-on-year increase in May. Core PCE inflation, which excludes food and energy prices, stood at 3.3%, compared with 3.4% in May.On a monthly basis, prices fell 0.1% between May and June, helped by a 9.2% decline in gasoline and other energy prices.Even so, inflation has remained above the central bank’s 2% target for more than five years, frustrating policymakers as well as consumers facing a high cost of living ahead of the November midterm elections, now less than 100 days away.The Federal Reserve on Wednesday left its benchmark interest rate unchanged for the fifth consecutive meeting. However, three regional Fed presidents dissented, saying they wanted to raise rates to tackle elevated inflation.Resilience amid economic and political pressuresThe latest figures also highlighted the resilience of the US economy despite the Iran war and the spike in energy prices it triggered. The labour market has strengthened this year after a weak 2025, giving consumers the confidence and income to keep spending.Employers have added an average of 92,000 jobs a month this year, compared with fewer than 10,000 jobs a month in 2025, when high interest rates and President Donald Trump’s erratic use of tariffs discouraged businesses from hiring.Political attention remains firmly on the economy ahead of November’s midterm elections, which will determine whether President Donald Trump’s Republicans retain full control of Congress.A new AP-NORC poll found public opinion has become less favourable towards the Iran war. It also showed that 72% of US adults consider it “extremely” or “very” important to prevent domestic oil and gas prices from rising, up from 67% in March.