The Commerce Department reported that US economic growth decelerated in the second quarter to an annual rate of 1.5%, falling short of analyst expectations of around 2% and declining from the 2.1% pace recorded in the first quarter. The slowdown occurred despite a notable acceleration in consumer spending, which expanded at a 3.2% rate after growing only 0.5% in the earlier period.
The broader economic contraction resulted from declines in government spending, business investment, and exports that outweighed the consumer spending gains. Consumer activity, which represents over two-thirds of US economic output, remained a bright spot as households continued purchasing motor vehicles, furniture, and prescription drugs despite inflation running at 3.5% over the 12-month period. Economists noted that the quarterly figure may understate underlying economic strength, with some forecasters expecting growth to rebound above 2% in subsequent months as investment outside the artificial intelligence sector showed signs of recovery.
The Federal Reserve maintained interest rates unchanged for the fifth consecutive meeting, with new chairman Kevin Warsh cautioning that there were no simple solutions to address persistent price pressures. Inflation has remained elevated above the Fed’s 2% target for an extended period, with the Personal Consumption Expenditures Price Index, a key inflation measure, increasing by 3.7%. Rising geopolitical tensions contributed to elevated oil prices, with Brent crude trading near $90 per barrel, pushing gasoline prices back above $4 per gallon nationally.
Economists attributed the growth slowdown partly to ongoing challenges including the financial effects of international conflict and tariff pressures facing US businesses. The Fed indicated that American economic activity was expanding at a solid pace despite these headwinds, and some analysts suggested that households had demonstrated resilience in absorbing the budgetary impact of higher fuel costs. Artificial intelligence-related investment remained a significant growth driver, though rising imports of microchips used in that sector’s development moderated its overall contribution to economic expansion.
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