U.S. economy grows at sluggish 1.5% pace in second quarter

The U.S. economy slowed to a 1.5% annual pace in the second quarter, the Commerce Department said Wednesday. That was down from 2.1% in the first three months of the year, and it matched the department’s first estimate for April through June.

The headline number looks soft, but consumers kept the engine running. Spending rose at a 3.4% annual rate, a sharp pickup from 0.5% in the first quarter. Since consumer spending makes up about 70% of U.S. economic activity, that matters a lot more than the top-line GDP figure might suggest.

Imports were the drag. They jumped at a 12.5% annual pace, helped by a surge in shipments of computer chips and other goods tied to artificial intelligence investment. Because imports are subtracted in GDP calculations, they shaved 1.64 percentage points off growth. That’s the weird trick of the report: a business boom can make the economy look weaker on paper.

And there was still real underlying strength. Business investment, excluding housing, grew at an 8.5% pace, while a measure that strips out volatile government spending and trade rose 4.2%, up from 1.7% in the first quarter. Housing investment also ticked up for the first time since the end of 2024, even with mortgage rates still high.

The report lands as inflation stays sticky. A Commerce Department measure watched closely by the Federal Reserve was unchanged in July, with prices up 3.7% from a year earlier, the same pace as June. That’s still well above the Fed’s 2% target, and with the third GDP report due Sept. 30, the picture is clear enough already: growth is cooling, but price pressure is not going quietly.