The U.S. economy expanded at an annual rate of 1.5% during the second quarter, according to a Commerce Department report released Thursday. This represents a deceleration from the first quarter’s 2.1% growth rate. The slowdown was primarily driven by reduced government spending and increased imports, which subtract from the domestic economic measurement.
Consumer spending continued to provide significant support to economic growth, expanding at a 2.1% pace during the period. However, households faced mounting pressure from inflation, with prices rising 3.7% year-over-year in June. This price acceleration has outpaced wage growth in recent months, prompting consumers to reduce their savings or increase borrowing to maintain spending levels. The personal savings rate declined to 2.7% in June, marking a three-year low.
Inflation remains a focal point for the Federal Reserve, which tracks the Commerce Department’s price index closely. Despite price increases exceeding the central bank’s preferences, the Federal Reserve decided against raising its benchmark interest rate during the period.
Trade dynamics created volatility in GDP performance during the quarter. While exports increased, imports grew at a faster pace, creating a net drag on the overall measurement. Mark Zandi, chief economist at Moody’s Analytics, noted that tariff-related fluctuations have caused trade’s contribution to economic growth to swing significantly from quarter to quarter, ultimately producing minimal net impact over time.
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