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

The U.S. economy expanded at a modest 1.5% rate between April and June, according to the Commerce Department's latest report. Nevertheless, consumer spending remained robust, surging by 3.4% annually. This outpaced the previous quarter's 0.5% growth. Imports, which are deducted from GDP calculations, surged by 12.5% and reduced the growth rate by 1.64 percentage points.

Notably, business investment, excluding housing, increased by 8.5%, driven by AI investments. Moreover, a measure of the economy's underlying strength, excluding volatile government spending and trade figures, expanded by 4.2%, up from 1.7% in Q1. Housing investment also ticked up for the first time since late 2024, despite high mortgage rates depressing the market.

The report, the second of three on Q2 GDP growth, indicates underlying economic resilience amid geopolitical tensions and energy price spikes. However, inflation remains a concern, with prices rising by 3.7% in July compared to a year ago, unchanged from June. The Fed's target is 2%, and higher inflation could impact the upcoming midterm elections.