US GDP Growth Slows to 1.5% in Q2 as Core Inflation Holds

U.S. economic growth slowed more than expected in the second quarter while inflation in June remained well above the Federal Reserve's goal, the Commerce Department reported Thursday.

Gross domestic product, a broad measure of goods and services, increased just 1.5% for the April-through-June period, according to Bureau of Labor Statistics numbers adjusted for seasonality and inflation. Economists surveyed by Dow Jones had been looking for a growth rate of 1.8%, following the 2.1% increase in the first quarter.

A separate report showed the personal consumption expenditures price index, the Federal Reserve's primary inflation gauge, fell a seasonally adjusted 0.1% for the month, putting the annual inflation rate at 3.7%. The readings were in line with forecasts. Excluding food and energy, core PCE posted a monthly increase of 0.1% and an annual level of 3.3%, against respective forecasts for 0.2% and 3.3%. While the Fed technically uses the headline PCE number as its policy gauge, most officials consider core inflation a better indicator of longer-run trends.

Stock market futures were positive following the report while Treasury yields were sharply higher. The reports come a day after a divided Fed voted 9-3 to hold its benchmark borrowing rate in a range between 3.5%-3.75%, where it has been all year. The three dissenting votes came from regional presidents who have expressed concerns about higher prices and the failure to make progress on the inflation side of the central bank's mandate.

Breakdown of GDP Components

The GDP miss appeared to come from a decline in federal government spending and inventories, while other parts of the economy showed strength.

Personal spending rose 2.1%, after a 0.4% gain in the first quarter
Final sales to private domestic purchasers, a key indicator of underlying demand, posted a 3.9% increase
Inventories fell 0.7%
Federal spending was off 0.3%
Gross private domestic investment rose 0.5%
Exports increased 0.5% while imports declined 1.5%

Inflation readings had been easing heading into 2026 but accelerated after the U.S. and Israel attacked Iran in late February, setting off a surge in energy prices that Fed officials worry will bleed over into the broader economy. Energy goods and services prices tumbled 5.9% in June, helped by a temporary ease in Middle East fighting that sent gasoline down 9.2%. Housing inflation also moderated, rising just 0.2%. Goods prices overall declined 0.6% while services increased just 0.1%. On a quarterly basis, the PCE index surged 5.1% on headline and 3.4% for core.

Spending held up for the month, with personal expenditures rising 0.3%, in line with expectations. Personal income was up 0.2%, below the 0.3% estimate. Consumers dipped into their savings to make ends meet, with the personal savings rate declining to 2.7%, the lowest in four years.

Source: CNBC

US GDP Growth Slows to 1.5% in Q2 as Core Inflation Holds at 3.3%

Breakdown of GDP Components

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