US GDP grows less-than-expected at 1.5% despite strong consumer spending

US economic growth slowed to 1.5% in the second quarter as weaker net exports offset robust consumer spending and strong AI-led business investment

By Augusta Saraiva

  The US economy grew at a weaker-than-expected pace in the second quarter despite a pickup in consumer spending and solid business investment.   

Inflation-adjusted gross domestic product increased an annualized 1.5% in the period, according to an advance estimate issued Thursday by the Bureau of Economic Analysis.  

A decline in net exports, which can be volatile from quarter to quarter, masked strength in underlying demand. Consumer spending, which comprises about two-thirds of economic activity, rose at a 3.2% rate. Business investment continued to boom amid a rush to invest in artificial intelligence. 

Because swings in trade can distort GDP, economists pay close attention to a narrower metric of underlying demand known as final sales to private domestic purchasers that excludes net exports, changes in inventories and government spending. This measure climbed 3.9% in the second quarter, more than double the first quarter pace and the strongest since early 2023. 

 

The report highlights an economy that’s so far powering through the fallout of the Iran war. While the conflict has pushed prices higher and weighed on sentiment, a slide in gasoline costs at the end of the quarter alongside higher-than-usual tax refunds and sales promotions helped support household spending.  

Separate data out Thursday showed inflation-adjusted consumer spending climbed a robust 0.4% in June, matching the strongest since July 2025. The Federal Reserve’s preferred measure of inflation — the personal consumption expenditures price index — fell 0.1% last month. Excluding food and energy, the gauge rose less than forecast.  

The massive AI investment push is also playing a critical role. After the Fed decided to keep interest rates unchanged on Wednesday, Chairman Kevin Warsh described the economy’s resilience as “impressive” but noted the “most striking” feature of the economy is the strength of business investment. 

Business investment remained a key driver of growth in the second quarter. Big technology firms including Meta Platforms Inc. and Microsoft Corp. are aggressively building out data centers and investing in AI, despite investors’ concerns about whether it will pay off.  

Net exports subtracted a percentage point from the calculation of GDP in the second quarter. That likely reflected a mix of factors, including efforts to get goods into the country before a new wave of tariffs and the rapid pace of capital investment. 

Inventories stripped an additional 0.67 percentage point from GDP, suggesting many businesses drew down their inventories during the war.