KVIG Informative

The U.S. economy slowed sharply in the second quarter, falling short of forecasts as a wider trade gap and softer government spending outweighed resilient consumer demand.

Real gross domestic product grew at an annualized rate of 1.5% in the second quarter of 2026, down from 2.1% in the first quarter and below the 2.1% pace economists polled by LSEG had expected, the Bureau of Economic Analysis said in its advance estimate Thursday.

Consumer spending accelerated to a 3.2% annualized rate, up sharply from 0.5% in the first quarter, driven by spending on prescription drugs, new light trucks, furniture, and food services and accommodations, according to the BEA.

Business investment told a mixed story. Equipment spending remained strong at 15.2%, while investment in structures contracted for a tenth consecutive quarter. Government spending fell 0.8% after the Trump administration authorized sales of crude oil from the Strategic Petroleum Reserve, a one-time factor that dragged on the topline number.

Net trade subtracted more from growth than in the prior quarter, as export growth slowed to 4.5% from 10.9% while import growth held near 11.5%, largely tied to continued imports of AI-related infrastructure equipment.

The report landed alongside renewed inflation pressure. The Fed’s preferred headline inflation gauge, tied to personal consumption expenditures, reaccelerated to 5.1%, driven largely by oil prices that jumped more than 20% in July as fighting between U.S./Israeli forces and Iran resumed. The core measure the Fed weighs more heavily in setting interest-rate policy cooled to 3.4%.

Personal income rose $54.9 billion in June, or 0.2%, with disposable income up a similar amount, the BEA reported in a separate release Thursday.

The advance estimate will be revised twice more before it’s final, and the BEA said this year’s annual updates to GDP and related data will all be released on the same day for the first time, September 30 — a scheduling change that will leave analysts working with incomplete numbers a little longer than usual before the fuller picture comes into view.