The U.S. economy expanded at a sluggish 1.5% annualized pace from April through June as rising imports weighed on growth, according to the Commerce Department. Thursday’s report marked the first of three Commerce Department estimates regarding second-quarter economic performance.
US Economy Expands at 1.5% Pace in Second Quarter
The headline growth figure was heavily impacted by foreign trade dynamics. Imports rose at an 11.5% pace, driven partly by a surge in shipments of computer chips, semiconductors, computer accessories, and other products that support artificial intelligence investment. Because gross domestic product is intended to count only what is produced domestically, imports are subtracted from the economic figures; this import surge shaved 1.5 percentage points off second-quarter growth. The trade deficit swelled 42.2% to a seasonally adjusted $77.6 billion in May, marking the highest level in nearly a year before shrinking slightly in June.
Consumer Spending and AI Investment Drive Underlying Strength
Despite the slower headline expansion, economic indicators beneath the surface demonstrated notable resilience. Consumer spending, which accounts for approximately 70% of U.S. economic activity, increased at a 3.2% annual clip in the second quarter, representing a sharp rebound from the 0.5% rate recorded in the January–March period. GDP.
Business investment, excluding housing, rose at an 8.4% pace. While down from 10.6% in the first quarter, the figure remained strong and reflected an ongoing surge in investment directed toward artificial intelligence infrastructure. Furthermore, a closely watched measure of underlying economic strength — real final sales to private domestic purchasers, which strips out volatile government spending and trade numbers — expanded at a 3.9% annual pace, marking a substantial increase from 1.7% in the previous quarter. Additional momentum heading into the summer was provided by the World Cup, which drew international tourists and boosted in-person spending by 5% year-over-year in host cities such as New York, Los Angeles, and Houston, with restaurants and bars capturing some of the largest gains.
Inflation Measures and Federal Reserve Policy Decisions
Inflation figures released alongside the economic data showed mixed signals. The personal consumption expenditures (PCE) price index, which is favored by the Federal Reserve, rose 3.7% last month from June 2025, cooling from a 4.1% year-over-year increase in May. Core consumer prices, which exclude volatile food and energy products, were up 3.3% from a year earlier, remaining little changed from a 3.4% increase in May. Prices actually fell 0.1% from May to June, aided by a 9.2% drop in the price of gasoline and other energy products.
Despite the monthly slowdown, the year-over-year increase in prices has remained stubbornly stuck above the central bank’s 2% target for more than five years. Meeting against this backdrop on Wednesday, the Federal Reserve chose to leave its benchmark interest rate unchanged for the fifth meeting. However, three regional Fed presidents dissented from the decision, indicating they wanted to raise rates to combat elevated inflation. Meanwhile, employers have added an average of 92,000 jobs a month this year, recovering from a lackluster 2025 when high interest rates and erratic tariff policies discouraged business hiring.
Economic Headwinds and Political Context Ahead of Midterms
The broader economic environment faces ongoing challenges from international conflict and rising costs. The Iran war, which intensified during the period, pushed energy prices upward and presented a headwind for household budgets, while also complicating planning for consumers, businesses, and policymakers.
Persistent inflation and higher living costs have frustrated Americans with less than 100 days remaining until November’s midterm elections. Those congressional elections will ultimately determine whether President Donald Trump’s Republicans maintain full control of Congress.
