WASHINGTON — The U.S. economy lost momentum during the second quarter, expanding at a 1.5% annualized rate as a surge in imports and weaker government spending weighed on headline growth, even as consumer spending and business investment remained resilient, according to new data released by the Commerce Department.
The advance estimate from the Bureau of Economic Analysis showed gross domestic product slowing from a revised 2.1% annualized growth rate in the first quarter and coming in below economists’ expectations of about 1.8%, according to reporting by The Wall Street Journal.
Despite the weaker headline figure, economists pointed to signs that underlying demand remained solid. Consumer spending, which accounts for roughly two-thirds of U.S. economic activity, rebounded sharply, rising at a 3.2% annualized pace after a sluggish first quarter. Business investment also remained strong, led by continued spending on software, artificial intelligence infrastructure and information technology equipment.
‘Understates Real Strength’
“The headline number understates the real strength in this economy. Consumer spending and business investment both held up well, with households actually stepping up their spending from the prior quarter despite soft consumer sentiment and lingering inflation worries,” Dawit Kebede, senior economist with America’s Credit Unions, said in a statement. “The drags came almost entirely from the noisier, less telling pieces: inventories, net exports, and government spending. Setting those aside, final private domestic demand looks solid, which is the cleaner read on where the economy stands.”
The primary drag on growth came from a wider trade deficit, as imports — particularly semiconductors, computer equipment and other technology products tied to AI-related investment — increased significantly. Because imports are subtracted in the calculation of GDP, the rise reduced the overall growth rate even as it reflected healthy domestic demand. Government spending also declined during the quarter.
‘Strongest Performance in Three Years’
A closely watched measure of underlying economic strength, final sales to private domestic purchasers, accelerated to a 3.9% annualized rate, its strongest performance in more than three years. Economists often view that measure as a better gauge of domestic demand because it excludes the volatile effects of trade, inventories and government spending.
As the CU Daily reported, the GDP report arrives one day after the Federal Reserve left its benchmark interest rate unchanged for a fifth consecutive meeting while signaling continued concern over inflation. The central bank faces the challenge of balancing still-elevated price pressures against signs that overall economic growth is moderating.
Inflation Above Target
Inflation also remains above the Fed’s 2% target. The GDP report showed the personal consumption expenditures price index, the Fed’s preferred inflation gauge, continued to run well above the central bank’s goal, reinforcing policymakers’ cautious approach to future interest-rate decisions.
The Commerce Department’s estimate is the first of three readings on second-quarter GDP and will be revised as more complete economic data become available.
