U.S. GDP Cools to 1.5% as Consumers Keep Spending Fast in Q2

U.S. GDP grew at a 1.5% annualized pace in the second quarter, held back by a wider trade deficit despite firm household demand.

The Commerce Department's Bureau of Economic Analysis released the advance estimate on Thursday, giving Washington its first official read on a quarter shaped by higher imports, active consumers and heavy equipment spending. Economists had expected a 2.1% pace, while first-quarter growth had run at 2.1%.

Trade gap cuts growth

The clearest drag came from trade. The deficit subtracted 1.01 percentage points from gross domestic product as imports widened, a channel that can make domestic demand look weaker in the headline number even when U.S. buyers are still spending.

The report also pointed to inventories being drawn down to meet demand, rather than stocked for later sales. Federal outlays were pressured by the reduction of the Strategic Petroleum Reserve, another detail that kept the headline pace below what the private economy alone might have suggested.

Consumers keep the quarter moving

Households did much of the work. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a 3.2% rate after slowing sharply to 0.5% in the January-March quarter.

Part of that lift came from larger tax refunds tied to President Donald Trump's "One Big Beautiful Bill," according to the source material. Higher-income households also had support from rising asset prices, while spending linked to the recently ended FIFA World Cup tournament and midterm election activity by nonprofits added to demand.

The cushion is thinner now. The saving rate stood at 2.7%, described by economists in the source material as a four-year low, while income growth cooled alongside a stable labor market that increased moderately in June.

"Underlying growth was solid, but is unlikely to be sustained," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "The boost from tax refunds is fading fast, underlying income growth is very weak, higher gas prices still are putting pressure on spending elsewhere, and the personal saving rate is well below its long-run average."

Average gasoline prices rising back above $4 a gallon create a street-level squeeze that can show up quickly in card spending, grocery trips and weekend travel decisions. Inflation moderated in June, but renewed hostilities between the United States and Iran were cited as a possible upside risk for prices and a downside risk for second-half growth.

AI equipment spending stands out

Business investment gave the report a second strong domestic signal. Spending on equipment climbed at a 15.2% rate, marking a second straight quarter of double-digit growth and reflecting continued spending tied to artificial intelligence infrastructure.

That AI buildout matters because it connects a macro report to data centers, chips, power equipment and networking hardware. If companies keep funding the buildout, equipment suppliers and infrastructure contractors could keep seeing orders even while consumer-facing sectors deal with higher fuel costs.

The sector risk is valuation and timing. The source material noted investor concern that many technology-company valuations have become stretched, meaning any delay in AI infrastructure returns could cool equipment demand faster than the GDP release alone suggests.

If consumer spending remains above income growth, the global macro effect would be continued U.S. demand for imports, but the household balance-sheet strain would deepen. For AI-linked equipment buyers and vendors, that path could still support near-term orders, while retailers, travel operators and fuel-sensitive businesses face tighter customer budgets.

If gasoline prices and Middle East risks ease, lower pressure at the pump could protect discretionary spending and keep inflation moderation intact. If energy costs climb instead, the mechanism reverses: households divert dollars to fuel, domestic demand weakens, and the AI equipment boom carries more of the burden for overall business investment.