US GDP Expands 1.5% in Q2, Consumer Spending Emerges as Key Growth Driver

The US economy grew at a slower-than-expected pace of 1.5% in the April-June 2026 quarter, reflecting the impact of rising imports and persistent inflation pressures. The latest Commerce Department data showed that economic growth moderated from 2.1% in the first quarter, highlighting challenges faced by businesses and policymakers. Despite the slowdown, consumer spending remained a major growth driver, rising at an annual rate of 3.2% compared with just 0.5% in the January-March period. Consumer activity, which accounts for nearly 70% of US economic output, helped cushion the impact of weaker external factors.

Business investment also remained strong, with non-residential investment increasing at an 8.4% pace during the quarter. The growth was supported by significant spending on artificial intelligence infrastructure, technology and related equipment, as companies continued to expand their AI capabilities. However, a sharp increase in imports weighed on overall growth. Imports surged at an 11.5% annual rate, driven partly by higher shipments of computer chips and other products linked to AI investments. Since imports are deducted from GDP calculations, they reduced second-quarter growth by 1.5 percentage points.

Meanwhile, inflation showed signs of easing but remained above the Federal Reserve’s target. The Personal Consumption Expenditures (PCE) price index, the central bank’s preferred inflation measure, increased 3.7% year-on-year in June, slowing from 4.1% in May. Core PCE inflation, which excludes food and energy costs, stood at 3.3%, indicating continued price pressures.

The Federal Reserve kept interest rates unchanged for the fifth consecutive meeting, although some regional Fed officials pushed for tighter monetary policy to control inflation. The US economy has remained resilient despite challenges including geopolitical tensions, higher energy costs, elevated interest rates and tariff uncertainties. A stronger labour market has supported consumer confidence, with employers adding an average of 92,000 jobs per month in 2026.

However, concerns over the high cost of living and inflation remaining above the Fed’s 2% target continue to weigh on households and policymakers ahead of the upcoming midterm elections. The latest GDP figure marks the first of three estimates for second-quarter economic growth.