U.S. Economic Growth Slowed to 1.5% in Second Quarter -- 4th Update

By Harriet Torry

U.S. economic growth slowed in the second quarter, weighed down by rising imports to fuel the U.S. artificial-intelligence boom and decreased government spending.

At the same time, consumers shrugged off a surge in gas prices and increased their spending.

Within the numbers, household spending increased this spring at its strongest pace since the third quarter of last year. And business investment remained strong as companies kept investing in IT equipment and software for the AI buildout.

Data-center builders rely heavily on imports like semiconductor chips, and those imports count against the U.S. growth calculation because the products are not made in the U.S.

The numbers

The Commerce Department said Thursday U.S. gross domestic product -- the value of all goods and services produced across the economy, adjusted for inflation and seasonal changes -- rose at a 1.5% annual rate in the second quarter.

Economists surveyed by The Wall Street Journal had expected GDP growth of 1.8% for the April to June period. The economy grew at a 2.1% pace in the first quarter.

Consumer spending

Consumer spending, the economy's main engine, rose at a 3.2% pace in the second quarter, picking up from 0.5% in the first quarter of this year. Consumers -- buoyed by a low unemployment rate and tax cuts -- increased their spending on both goods and services.

Middle East risk

The conflict with Iran posed some challenges for the U.S. economy in the April-to-June quarter by significantly raising fuel costs and inflation that ate into households' wages. Regular gasoline averaged $4.22 a gallon in the second quarter, according to AAA data, up from less than $3 a gallon before the U.S. and Israel launched the war on Iran at the end of February.

Economists say an energy-price shock is the main risk to the economy heading into the second half of the year, since a pickup in inflation could prompt the Federal Reserve to tighten interest rates. Renewed tensions pushed up oil and gasoline prices for much of July.

Pressure building at the Fed

The GDP report came a day after Fed officials voted Wednesday to hold the central bank's benchmark interest rate steady, in a range of 3.5% to 3.75%. The decision came in a 9-3 vote as three bank presidents dissented in favor of a quarter-point rate increase, a sign of heightened tension over inflation.

Fed Chairman Kevin Warsh characterized the economy and labor market in broadly positive terms, noting strength in productivity and investment in artificial intelligence.

"The economy is showing impressive resilience," Warsh said during his postmeeting press conference.

Signs of strength

Job gains were steady in the second quarter, and the unemployment rate remained low. Beyond the impact of gas prices, Americans got a break on inflation in June: Excluding food and energy products, prices were broadly flat, according to the Labor Department.

And while gas prices rose again this month, recently topping $4.10, they remain below the postwar high above $4.50 hit in May.

The corporate view

Some companies cautioned that shoppers are increasingly price-sensitive amid high inflation. "The consumer is muted, but stable," Procter & Gamble's chief financial officer Andre Schulten told The Wall Street Journal this week. "Every consumer is looking for value."

Still, major companies that have issued quarterly results thus far have largely reported strong sales and earnings, marking a sign that consumers, supported by a still-low unemployment rate, remain willing to spend.

American Express posted higher sales and profit in the second quarter, thanks to higher spending among its credit-card members. And toy maker Hasbro last week lifted its outlook for the year, pointing to strong demand for games and toys.

--Photo credit: Chris Torres/EPA/Shutterstock.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

July 30, 2026 08:58 ET (12:58 GMT)