By AP, July 31, 2026
The U.S. economy expanded at an annualized 1.5% pace in the second quarter, the Commerce Department reported Thursday, slower than economists had expected as a surge in imports weighed on growth even while consumer spending stayed strong.
Consumer outlays — which account for roughly 70% of economic activity — rose at a 3.2% annualized rate in April through June, a sharp rebound from the 0.5% pace in the first quarter. A measure meant to show the economy’s underlying momentum by stripping out volatile government spending and trade components grew at a brisk 3.9% annual rate, up from 1.7% in Q1.
Business investment excluding housing climbed 8.4% annualized, down from 10.6% in the prior quarter but still robust, reflecting heavy spending tied to artificial intelligence projects. Much of that AI-related spending was supported by imported goods: imports jumped at an 11.5% annualized clip — including large shipments of computer chips and other inputs — and subtracted about 1.5 percentage points from second-quarter GDP. (GDP counts only goods and services produced domestically, so imports reduce headline growth.)
“The consumer rescued the quarter,” said Olu Sonola, head of U.S. economics at Fitch Ratings, noting that strong household spending and corporate investment powered growth even as an import surge limited the GDP boost from the AI buildout.
Inflation measures the Federal Reserve watches also remained elevated. The Commerce Department said the personal consumption expenditures (PCE) price index, the Fed’s preferred gauge, was up 3.7% year over year in June, down from a 4.1% increase in May. Core PCE, which excludes food and energy, rose 3.3% from a year earlier, little changed from May’s 3.4% gain. On a monthly basis, PCE prices fell 0.1% from May to June, largely driven by a 9.2% drop in gasoline and other energy prices.
Though PCE readings were roughly in line with forecasts, inflation has remained above the Fed’s 2% target for more than five years, prompting impatience among some policymakers. At its meeting this week, the Fed left its benchmark interest rate unchanged for the fifth consecutive meeting, but three regional Fed presidents dissented, arguing for higher rates to counter persistent inflation.
The economy’s resilience has been notable amid global disruptions. Despite the Iran war and a related spike in energy costs earlier in the year, hiring has improved: employers have added an average of about 92,000 jobs per month so far this year, a recovery from the weak pace of fewer than 10,000 monthly hires in 2025 when high interest rates and trade uncertainty weighed on business activity.
Rising prices remain politically salient ahead of the November midterm elections, now fewer than 100 days away. A new AP-NORC poll found growing public concern about energy costs: roughly 72% of U.S. adults said it is “extremely” or “very” important for the U.S. to prevent domestic oil and gas prices from rising, up from 67% in March. Voter frustration over living costs could shape the political landscape as control of Congress is contested.
Overall, the picture is mixed: consumers and corporate investment are supporting activity, particularly in technology-related spending, but strong import demand and sticky inflation are limiting the domestic growth payoff and keeping monetary policymakers on alert.