US economic growth slowed more than expected in the second quarter, though consumer spending seemed to shrug off intensifying price measures.
Real gross domestic product increased at a 1.5% annualized rate in the quarter ended June, according to an advance estimate released Thursday by the Bureau of Economic Analysis. A survey compiled by Bloomberg indicated a slowdown to 2% from the first quarter's 2.1% rate.
Consumer spending growth accelerated to 3.2% in the second quarter from 0.5% in the preceding quarter, and topped Wall Street's views for a 2.3% increase, BEA data showed. Outlays on goods climbed to its highest level since the fourth quarter of 2024, while services gains also moved higher on a quarter-over-quarter basis.
"The US economic expansion found its footing in the second quarter as robust consumer and business spending drove a surge in domestic demand," BMO Chief US Economist Scott Anderson wrote in a note. "At a 3.2% real consumer spending pace, the US consumer did not disappoint, spending more on motor vehicles, furnishings and household equipment, and recreational goods."
The personal consumption expenditures price index rose 5.1% in the June quarter, compared with a 4.6% gain in the previous three-month period. Excluding food and energy prices, the index's growth eased to 3.4% from 4.4%.
"Consumption growth was primed for a rebound after weather-related disruptions acted as a drag in (the first quarter), but still came in well above expectations," TD Economics Economist Andrew Foran said Thursday. "Growth in consumer spending on discretionary items like eating out and recreation are also positive indicators."
US inflation, as measured by the personal consumption expenditure price index, dipped last month for the first time in more than six years, as lower energy prices offered a brief consumer reprieve before renewed Middle East hostilities sent oil costs higher again.
"While rising interest rates, volatile energy prices, and new tariff policies could act as near-term headwinds, we expect the economy to be able to sustain growth of roughly 2% through the second half of the year on the back of continued investments in (artificial intelligence) and moderate growth in consumer spending," Foran added.
The Federal Reserve left its policy rate unchanged on Wednesday in a split vote that included three policymakers calling for a hike.
