U.S. GDP Growth Slows to 1.5% in Q2 as Inflation Signals Mixed — Evening Brief – 07.30.26
U.S. gross domestic product grew at an annualized rate of 1.5% in the second quarter, missing the 2.3% consensus estimate and decelerating from 2.1% growth in the first quarter, according to the Bureau of Economic Analysis’s initial estimate released Thursday.
The slowdown was driven primarily by a downturn in government spending and softer investment and export growth, partly offset by stronger consumer spending. Imports, which are subtracted from GDP calculations, also rose more sharply than in the first quarter.
Despite the overall deceleration, real final sales to domestic purchasers — a metric closely watched to gauge underlying demand — climbed 3.9% in the second quarter, up sharply from 1.7% in the first quarter. Personal consumption expenditures grew 3.2%, well above the 2.1% consensus and a substantial jump from 0.5% growth in the prior quarter.
Inflation data included in the report showed mixed signals. The PCE price index rose 5.1% in the second quarter, reflecting higher oil prices, up from 4.5% in the first quarter. Core PCE, which excludes food and energy, increased 3.4% for the quarter, slowing from 4.4% previously.
The BEA’s accompanying June personal income and outlays report showed core PCE cooling to 0.1% month-over-month, down from 0.3% in May and below the 0.2% consensus. On an annual basis, core PCE rose 3.3%, decelerating from 3.4% the prior month. The headline PCE price index fell 0.1% for the month, matching expectations, and rose 3.7% year-over-year, in line with forecasts and down from 4.1% in May.
Personal income rose 0.2% in June, below the 0.3% consensus, while personal consumption expenditures increased 0.3%, short of the 0.4% estimate. Personal outlays climbed $70.0 billion for the month.
The data may reinforce expectations that the Fed can afford to remain patient in the near term. However, elevated headline inflation, driven in part by higher energy prices, continues to complicate the outlook, leaving markets focused on whether policymakers will tighten at their September meeting if inflation pressures persist.