Key facts
- US GDP grew at a 1.5% annualized rate in Q2, down from 2.1% in Q1.
- Consumer spending rose 3.2% in Q2, a significant increase from Q1.
- The PCE price index, the Fed's preferred inflation gauge, rose 3.7% year-over-year in June.
- Core PCE inflation was up 3.3% year-over-year in June.
- Three Federal Reserve officials dissented, voting to raise interest rates.
The U.S. economy experienced a slowdown in the second quarter, with gross domestic product growing at a 1.5% annualized rate, a deceleration from the 2.1% pace recorded in the first quarter. This cooling growth was partly attributed to a widening trade deficit, exacerbated by increased imports of AI-related products.
Despite the overall economic slowdown, consumer spending demonstrated resilience, accelerating to a 3.2% annualized rate in the second quarter, up from a sluggish 0.5% in the previous period. Business investment also remained robust, growing at an 8.4% annualized rate. Core GDP, which excludes volatile components, showed stronger underlying momentum, accelerating to 3.9%.
Inflationary pressures persist, though the Federal Reserve's preferred inflation gauge, the PCE price index, rose 3.7% year-over-year in June, a slight decrease from May's 4.1%. Core PCE inflation was up 3.3% year-over-year. These elevated price levels have led to internal debate within the Federal Reserve, with three regional Fed presidents dissenting in favor of raising interest rates at the latest meeting, signaling ongoing concerns about inflation.
The labor market continues to be a strong point for the economy, with employers adding an average of 92,000 jobs per month this year, providing consumers with the means to continue spending despite higher costs. However, persistent inflation remains a concern for households, particularly ahead of the midterm elections.