The U.S. economy recorded a modest growth rate of 1.5% from April to June, hindered by booming imports. Despite this, consumer spending continued to rise. The Federal Reserve’s preferred inflation measure slowed last month, yet stayed above the 2% target, a concern as elections approach.
According to the Commerce Department, the GDP growth decelerated from 2.1% in the first quarter of 2026, surprising economists. However, consumer spending, which drives about 70% of economic activity, improved to a 3.2% annual rate, up from 0.5% at the beginning of the year.
A measure reflecting the economy’s core strength, excluding government spending and trade figures, expanded at 3.9% annually, a jump from 1.7% earlier in the year. Business investment, excluding the housing sector, grew at 8.4%, a slight decrease from 10.6% but still strong, driven by surging investment in artificial intelligence.
“The consumer rescued the quarter,” stated Olu Sonola, head of U.S. economics at Fitch Ratings. “AI investment is a compelling growth narrative, though the import surge highlights that AI growth doesn’t equate to a substantial gain in U.S. GDP.”
Imports surged 11.5%, mostly from increased shipments of computer chips and AI-related products, subtracting 1.5 percentage points from the GDP growth.
The personal consumption expenditures price index, favored by the Fed, went up 3.7% last month compared to the previous year, slowing from 4.1% in May. Core consumer prices, excluding food and energy, remained relatively stable at a 3.3% yearly increase. Prices saw a 0.1% decrease from May to June, largely due to a 9.2% drop in energy prices.
Economists’ expectations matched the PCE price index increases, though the persistent elevation above the 2% target is worrisome. The Fed chose to maintain its benchmark interest rate for the fifth consecutive meeting despite some internal disagreements.
Economically, the U.S. has proven robust against challenges like the Iran war and rising energy costs. The job market rebounded from a sluggish 2025, with employers creating 92,000 jobs monthly on average this year, compared to under 10,000 monthly last year. This growth has empowered consumer spending.
The impending midterm elections have highlighted frustrations over high costs. A poll by AP-NORC revealed increased concerns over oil and gas prices, with 72% deeming it vital to prevent further rises, up from 67% a few months earlier.