The U.S. economy grew at a sluggish 1.5% annualized rate in the second quarter as a massive wave of artificial intelligence imports widened the trade deficit. Despite the slowdown from the previous period, robust consumer spending and job market resilience helped keep the expansion afloat heading into summer.
The world’s largest economy lost steam from April through June as rising imports weighed on growth, according to Commerce Department data released Thursday. Gross domestic product decelerated from the 2.1% pace recorded in the first three months of 2026, falling short of economists’ expectations.
Yet a closer look at the data reveals an economy undergoing a distinct crosscurrent. While trade imbalances dragged down headline figures, consumer spending picked up sharply to an annualized 3.2% rate, serving as the primary engine for the quarter.
AI Infrastructure Imports Weigh Down Headline GDP
The second-quarter expansion was heavily impacted by the physical toll of the technological buildout. Business investment remained strong, expanding at an annualized rate of 8.4% as companies poured capital into artificial intelligence infrastructure. That figure dipped slightly from a 10.6% pace in the first quarter, but it reflects relentless corporate demand for advanced technology.
Because GDP calculations subtract imports to measure strictly domestic output, the machinery behind the boom created a heavy accounting drag. Imports surged at an 11.5% pace, driven by shipments of computer chips, accessories, and semiconductors required for AI development. Those shipments alone shaved 1.5 percentage points off second-quarter growth.
“AI investment remains a powerful growth story, but the import surge underpinning the buildout is a reminder that an AI boom does not automatically translate into an equally large boost to U.S. GDP.”
Olu Sonola, head of U.S. economics at Fitch Ratings
The trade deficit swelled significantly as a result, surging 42.2% to a seasonally adjusted $77.6 billion in May. It marked the highest trade gap level in nearly a year before narrowing slightly in June.
Resilient Consumers and the Labor Market Rescue the Quarter
While trade figures suppressed the top-line number, domestic purchasers told a different story. A key measure of underlying economic strength—real final sales to private domestic purchasers, which strips out volatile government spending and trade swings—accelerated to a 3.9% annual pace, up from 1.7% in the opening months of the year.
Households drove that underlying strength. Consumer spending, which makes up roughly 70% of economic activity, rebounded sharply from a meager 0.5% growth rate in the first quarter.
Economists pointed to multiple tailwinds supporting household balance sheets. Nationwide chief economist Kathy Bostjancic noted that Americans benefited from a robust labor market, a buoyant stock market, bigger tax refunds, and accumulated savings. Employers have added an average of 92,000 jobs per month this year, a sharp rebound from a sluggish 2025 when high interest rates and trade tariff uncertainties discouraged hiring.
Tourism also provided a seasonal boost heading into summer. Cities hosting World Cup matches saw in-person spending rise 5% on a yearly basis, with restaurants and bars capturing some of the largest gains across major metropolitan areas.
Stubborn Inflation and Federal Reserve Divisions
Inflation continued to hover above central bank comfort levels, complicating the broader economic outlook. The personal consumption expenditures price index—the Federal Reserve’s preferred inflation gauge—rose 3.7% last month from June 2025, cooling from a 4.1% increase in May.
Core prices, which exclude volatile food and energy costs, ticked up 3.3% from a year earlier. Energy prices offered some relief over the monthly cycle, falling 0.1% from May to June due to a 9.2% drop in gasoline and related products.
Even so, annual price increases have remained stuck above the Fed’s 2% target for more than five years. That persistence has exposed divisions among policymakers. The central bank opted to leave its benchmark interest rate unchanged for the fifth straight meeting, but three regional Fed presidents dissented, arguing for higher rates to combat elevated price pressures.
Geopolitical shocks present additional hazards. The ongoing Iran war has driven up energy volatility and complicated long-term planning for businesses and households alike. As voters grapple with higher living costs ahead of the November midterm elections, economists warn that subsequent energy spikes could test whether consumer resilience can hold.
Worth a look
