The economy grew at an inflation-adjusted 1.5% annual rate in the second quarter, the Bureau of Labor Statistics said in a preliminary estimate of GDP that also indicated that consumer spending and artificial intelligence investment are keeping commerce steady.
The reading, the first of three estimates for second-quarter GDP, indicates that economic growth slowed from the first quarter of this year, which clocked a 2.1% GDP growth rate, adjusted for seasonal variations. But it is an increase from the fourth quarter of last year, which saw anemic 0.5% growth.
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Commerce has been driven in part by sustained strong consumer spending, which accelerated to a robust 3.2% clip in the second quarter. It has also been underpinned by the investment being poured into AI, which has led to a boom in data center construction. Thursday’s report showed continued strong growth in investment in equipment and intellectual property.
“The consumer rescued the quarter,” said Olu Sonola, head of U.S. economics at Fitch Ratings. “After AI investment dominated the previous period, consumer spending emerged as the main engine of growth, comfortably exceeding expectations and underscoring the economy’s resilience.”
While the headline GDP growth number was less than investors expected, details from the report suggest that underlying growth was stronger.
Specifically, inventories, imports, and government spending all subtracted from the calculation of economic growth in the second quarter. Those three factors are usually not indicative of future quarters’ growth.
And other indicators were more encouraging. Notably, final sales to private domestic purchasers, a measure that focuses only on the U.S. private sector, expanded at a strong 3.9% rate. That suggests that private-sector demand is healthy.
Overall, the continued growth is evidence that the Trump administration will point to as proof that his economic agenda is bringing about results.
Still, the latest numbers come as President Donald Trump has struggled with poor economic approval ratings. Trump entered office promising to lower prices after years of high inflation under former President Joe Biden, but the price growth of many goods and services has remained stubbornly high.
Other economic variables, such as GDP and the unemployment rate, have been more favorable to the president and give Republicans data to cite to voters in the midterm elections.
Steady GDP growth also offers the Federal Reserve some leeway as it attempts to drive down inflation.
The Fed’s goal is 2% inflation, and it has been years since that target has been reached.
The consumer price index, the most closely watched inflation gauge, was running at 3.5% for the 12 months ending in June. That was a decrease from a recent high of 4.2% in May, but it is still much too high.
Like GDP, the labor market has remained steady. The economy has added jobs at a pace strong enough to keep unemployment trending down. The economy added 57,000 jobs last month.
The unemployment rate fell 0.1 percentage points to 4.2%, the Bureau of Labor Statistics reported this month. That is low by historical standards.
FED HOLDS RATES STEADY, WITH THREE OFFICIALS DISSENTING
On Wednesday, the Fed voted once again to hold interest rates steady as the central bank continues to monitor inflation and the overall economy.
Still, some on the Fed board think rates should be increased to put further pressure on inflation. Three of the Fed board members voted to raise interest rates at the meeting this week.
