The US economy grew at an annualized rate of just 1.5% in the second quarter of 2026, a slowdown from the previous quarter, though consumer spending remained robust. The Commerce Department's Bureau of Economic Analysis released the data on Thursday, with first-quarter growth at 2.1% and the second-quarter figure falling short of the 2% median estimate from economists.
The Bureau indicated that a decline in government spending, along with slower export growth and business investment, weighed on overall expansion. However, personal consumption expenditures surged, suggesting the underlying strength of the US economy persists despite the impact of the conflict between Trump and Iran.
Bradley Saunders, an analyst at Capital Economics, commented that "the Q2 GDP report significantly underestimates the health of the economy. This growth slowdown… will not alter the Federal Reserve's assessment that the economy is expanding solidly."
The five-month Middle Eastern war continues to ripple through the global economy, with disruptions to energy infrastructure pushing up gasoline prices and adding to inflationary pressures. The day before the economic report was published, the Federal Reserve held interest rates steady, causing market volatility as investors grew concerned about the central bank's ability to counter the inflation shock from geopolitical tensions.
Despite rising prices, the data showed US residents continued to increase spending, boosted by large tax refunds. Quarterly personal consumption expenditures rose at an annualized rate of 2.1%, up sharply from just 0.4% in the first quarter.
Following the report's release, US Treasury yields and the dollar edged lower, though the overall market reaction to the data was relatively muted. Ajay Rajadiakshya, head of global research at Barclays, said the market had "largely priced in" the disappointing GDP figure. "My overall take is that the US economy is running fine," he added.
Investment in AI infrastructure by technology companies, which supported growth earlier in the year, has moderated, with private investment growth slowing from 1.4% to 0.5%. However, the final sales to domestic private purchasers—a key metric the Federal Reserve tracks—grew at an annualized rate of 3.9%, up from 1.7% in the prior quarter. This indicator aggregates spending by households and businesses.
Export growth weakened, weighed down by a decline in travel-related spending, which more than offset a continued increase in crude oil shipments driven by the war. Meanwhile, government spending declined in absolute terms as the US administration sold off strategic petroleum reserves.
Oliver Allen, an analyst at Macroeconomic Research Institute, warned that while current growth remains solid, it may not be sustainable, with consumer spending likely to cool in the coming months. "The stimulus from tax refunds is fading rapidly, underlying household income growth is very weak, higher gasoline prices are squeezing spending in other areas, and the personal savings rate… is already well below its long-term average," he stated.
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