The U.S. economy expanded at an annual rate of 1.5 percent in the second quarter, falling short of economists' projections, according to a Commerce Department report released July 30, 2026.
The slowdown occurred despite significant increases in consumer spending and business investment, particularly in data centers for artificial intelligence.
Consumer spending, which accounts for about two-thirds of the economy, grew at an annualized rate of 3.2 percent in the second quarter, a notable increase from 0.5 percent in the first quarter. This spending surge helped to buoy the economy amid headwinds from higher oil prices and ongoing geopolitical conflicts.
Business investment also contributed positively, rising 8.4 percent in the quarter. This growth was largely driven by substantial investments in AI infrastructure, such as the Stargate data center in Abilene, Texas.
The second quarter report follows a 2.1 percent annualized growth rate in the first quarter. While slower, the current growth rate indicates the economy is still expanding and is a significant distance from a recession.
However, the report also highlighted concerns about inflation. The personal consumption expenditures (PCE) price index, an alternative measure of inflation, showed a June reading of 3.7 percent, which remains elevated. This figure did not reflect the cooling seen in the Consumer Price Index (CPI) earlier in the month.
Analysts noted that the second-quarter data predates a sharp rebound in energy prices in July, which could exert renewed upward pressure on inflation. Geopolitical tensions in the Middle East, a significant factor in rising oil prices, could lead to further consumer pressure at the pump and complicate the inflation outlook.
"Ultimately, disappointing second-quarter growth may give the Fed some cover to remain on hold, but elevated inflation is making that position increasingly difficult to defend," said Bret Kenwell, US Investment Analyst at eToro, in comments to the Daily Mail. He suggested that higher oil prices could present a more complex inflation scenario for markets to navigate.
The U.S. economy has shown resilience over the past year, including weathering the impact of broad tariffs implemented by President Donald Trump on nearly all U.S. imports. These tariffs, enacted on the one-year anniversary of his 'liberation day' declaration of a national emergency over trade deficits, were estimated by the Tax Foundation to have reduced GDP by 0.4 percent and represented a significant tax burden on American families. Excluding this impact, the economy's underlying performance appears more robust.
With markets processing recent Federal Reserve commentary and navigating a mixed earnings season, the coming weeks are anticipated to be critical in determining the stock market's trajectory through the summer.