The U.S. economy expanded at a sluggish 1.5% annual pace from April through June according to the Commerce Department, as rising imports weighed on growth while consumer spending continued to provide crucial support. Growth in U.S. gross domestic product—the nation’s output of goods and services—decelerated from a 2.1% rate in the first three months of 2026, coming in below economists’ expectations.
Second-Quarter GDP Decelerates Amid Import Drag and Resilient Consumer Spending
Despite the overall slowdown, consumer spending, which accounts for about 70% of U.S. economic activity, increased at a 3.2% annual clip, rebounding significantly from a 0.5% pace in the January–March period. The consumer rescued the quarter,
said Olu Sonola, head of U.S. economics at Fitch Ratings, as reported by KSTP.
A separate measure of the economy’s underlying strength that strips out volatile government spending and trade numbers expanded at a 3.9% annual pace, improving from 1.7% in the first quarter. Business investment, excluding housing, rose at an 8.4% pace, reflecting a strong surge in artificial intelligence investments, though down from 10.6% in the previous period.
Imports and the Artificial Intelligence Boom
Because GDP is structured to count only what is produced inside the United States, imports are subtracted from the economic figures. Imports rose at an 11.5% pace during the second quarter, driven partly by a surge in shipments of computer chips and other products supporting artificial intelligence investments. This import surge shaved 1.5 percentage points directly off second-quarter GDP growth.
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 U.S. GDP,
Sonola noted Apnews.
Inflation Measures and Federal Reserve Policy
Meanwhile, the Federal Reserve’s favored measure of inflation—the personal consumption expenditures (PCE) price index—rose 3.7% last month compared with June 2025, slowing down from a 4.1% year-over-year increase in May. Core consumer prices, which exclude volatile food and energy items, were up 3.3% from a year earlier, little changed from May’s 3.4% increase. Prices actually fell 0.1% from May to June, aided by a 9.2% drop in gasoline and other energy products.
Although PCE prices generally aligned with economists’ expectations, the year-over-year increase has remained stuck above the central bank’s 2% target for more than five years. On Wednesday, the Federal Reserve chose to leave its benchmark interest rate unchanged for the fifth straight meeting. However, three regional Fed presidents dissented from the decision, stating they wanted to raise rates to combat elevated inflation.
Broader Economic Resilience and Political Stakes
The broader American economy has demonstrated surprising resilience in the face of the Iran war and the resulting energy price spikes. The job market has rebounded from a lackluster 2025—when high interest rates and President Donald Trump’s erratic use of tariffs discouraged business hiring—with employers adding an average of 92,000 jobs a month this year compared with fewer than 10,000 a month previously.
Even with these job gains, higher living costs have left Americans frustrated as detailed by the Boston Globe, just under 100 days ahead of November’s midterm elections, which will determine whether President Donald Trump’s Republicans retain full control of Congress. A recent AP-NORC poll indicated that the public is souring on the Iran war, with about 7 in 10 U.S. adults (72%) stating it is extremely or very important for the U.S. to prevent domestic oil and gas prices from rising, up from 67% in March.