US Economy Experiences Slowdown as GDP Growth Declines to 1.5%, Consumer Spending Remains Strong

Strong consumer spending and steady business investment supported the US economy in the second quarter, but a surge in imports slowed overall growth to its lowest pace this year. According to data from the Commerce Department, the economy expanded at an annual rate of 1.5% from April to June, down from 2.1% in the first quarter and below economists’ expectations.

Household spending remained a key driver, with consumer spending, which constitutes about 70% of US economic activity, accelerating to a 3.2% annual rate, up from just 0.5% in the previous quarter. A broader measure of economic strength, excluding government spending and trade, showed a 3.9% annual growth rate, an improvement from 1.7% in the first quarter. Business investment outside the housing sector also continued to grow, increasing at an annual pace of 8.4%, although this was a decline from 10.6% in the first quarter.

Imports Erode Growth

The primary drag on growth came from imports, which surged at an annual rate of 11.5%. Increased shipments of computer chips and other products related to artificial intelligence contributed to this rise. Since GDP measures only domestic production, the increase in imports reduced second-quarter growth by 1.5 percentage points. Olu Sonola, head of US economics at Fitch Ratings, noted that while consumer spending bolstered the quarter, the import surge serves as a reminder that an AI boom does not necessarily lead to a proportional increase in US GDP.

Inflation Trends

Alongside the GDP figures, the Commerce Department reported a continued easing of inflation in June, although it remained above the Federal Reserve’s target. The personal consumption expenditures (PCE) price index rose 3.7% from June 2025, down from a 4.1% increase in May. Core PCE inflation, which excludes food and energy prices, was at 3.3%, slightly lower than May’s 3.4%. Monthly prices fell by 0.1% between May and June, aided by a 9.2% drop in gasoline and energy prices. Despite this, inflation has stayed above the central bank’s 2% target for over five years, causing frustration among policymakers and consumers facing high living costs ahead of the upcoming midterm elections.

Economic Resilience Amid Challenges

The latest data reflects the resilience of the US economy despite geopolitical tensions and rising energy prices. The labor market has strengthened this year, providing consumers with the confidence and income to maintain spending. Employers added an average of 92,000 jobs per month this year, a significant increase compared to fewer than 10,000 jobs per month in 2025. Political focus remains on the economy as the November midterm elections approach, which will determine if President Donald Trump’s Republicans maintain control of Congress. A recent AP-NORC poll indicated that public sentiment towards the Iran war has become less favorable, with 72% of US adults considering it crucial to prevent domestic oil and gas prices from rising, up from 67% in March.

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