US GDP grows less-than-expected 1.5% despite strong consumers

[WASHINGTON] The US economy grew at a weaker-than-expected pace in the second quarter despite a pickup in consumer spending and solid business investment.  

Inflation-adjusted gross domestic product increased an annualised 1.5 per cent in the period, according to an advance estimate issued on Thursday (Jul 30) by the Bureau of Economic Analysis. 

A decline in net exports, which can be volatile from quarter to quarter, masked strength in underlying demand. Consumer spending, which comprises about two-thirds of economic activity, rose at a 3.2 per cent rate. Business investment continued to boom amid a rush to invest in artificial intelligence.

Meanwhile, the Federal Reserve’s preferred measure of inflation – the personal consumption expenditures price index – fell 0.1 per cent last month from May on the back of lower petrol prices. Excluding food and energy, it rose 0.1 per cent.

The report highlights an economy that’s so far powering through the fallout of the Iran war. While the conflict has pushed prices higher and weighed on sentiment, a slide in petrol costs at the end of the quarter alongside higher-than-usual tax refunds and sales promotions helped support household spending. 

Separate data out Thursday showed inflation-adjusted consumer spending climbed a robust 0.4 per cent in June, matching the strongest since July 2025.

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The massive AI investment push is also playing a critical role. After the Fed decided to keep interest rates unchanged on Wednesday, chairman Kevin Warsh described the economy’s resilience as “impressive” but noted the “most striking” feature of the economy is the strength of business investment.

Business investment remained a key driver of growth in the second quarter. Big technology firms including Meta Platforms and Microsoft are aggressively building out data centres and investing in AI, despite investors’ concerns about whether it will pay off. BLOOMBERG