U.S. Growth Holds at 1.5% as Inflation Remains Elevated — Evening Brief – 08.26.26

The U.S. economy expanded at a modest pace in the second quarter while consumers accelerated spending and businesses posted stronger profits, but elevated inflation continued to complicate the Federal Reserve’s September policy decision.

Real gross domestic product increased at a 1.5% annualized rate during the quarter, unchanged from the initial estimate and down from 2.1% in the first quarter, the Bureau of Economic Analysis reported Wednesday.

Consumer spending, exports and private investment contributed to growth, while lower government spending weighed on the result. The slowdown from the first quarter reflected weaker government expenditures and slower growth in investment and exports, partly offset by stronger household consumption.

Personal consumption expenditures increased at a revised 3.4% annualized rate, up from the initial 3.2% estimate and sharply higher than the first quarter’s 0.5% pace.

Inflation estimates were revised higher. The PCE price index rose at a 5.3% annualized rate, while the core measure excluding food and energy increased 3.6%. Both were revised upward by 0.2 percentage point.

Corporate profits from current production increased $400.9 billion, compared with a $74.4 billion gain during the first quarter. Real gross domestic income, an alternative measure of economic activity, advanced 2.2%.

Separate July data showed inflation remained sticky. Core PCE prices increased 0.2% from June and 3.3% from a year earlier. Headline prices rose 0.2% monthly and 3.7% annually, remaining well above the Fed’s 2% goal.

Personal income climbed 0.4%, outpacing the 0.2% rise in spending. That lifted the personal saving rate to 3% from 2.6%, although it remained below January’s 4.4%.