US economic growth slows to 1.5% in Q2 2026 as inflation rises

US economic growth decelerated to an annual rate of 1.5% in the second quarter of 2026, a notable slowdown from the 2.1% growth recorded in the first quarter. This cooling occurred even as key inflation indicators showed an upward trend, according to the latest estimates from the US Bureau of Economic Analysis (BEA).

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Real gross domestic product (GDP) increased at an annual rate of 1.5 per cent in the second quarter of 2026 (April, May, and June). In the first quarter, real GDP increased 2.1 per cent.

The BEA attributed the slowdown primarily to a decline in government spending, alongside slower growth in investment and exports. While consumer spending, exports, and investment contributed to the overall GDP increase, these were partially offset by the drop in government expenditures. Imports, which are subtracted in GDP calculations, also saw an increase.

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Compared to the first quarter, the deceleration in real GDP in the second quarter reflected a downturn in government spending and decelerations in investment and exports.

Despite the overall growth deceleration, underlying private domestic demand proved stronger than initially estimated. Real final sales to private domestic purchasers, a measure that includes consumer spending and gross private fixed investment, saw a robust increase of 4.2%, revised up from the earlier 3.9% estimate. This suggests underlying economic activity among consumers and businesses remained resilient.

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Real GDP increased at the same rate as in the advance estimate. An upward revision to consumer spending was partly offset by an upward revision to imports.

However, inflationary pressures intensified during the quarter. The price index for gross domestic purchases rose by 5.8%, a slight upward revision from the previous estimate of 5.7%. Similarly, the personal consumption expenditures (PCE) price index increased to 5.3%, up from 5.1%, and the core PCE price index, excluding food and energy, rose to 3.6% from 3.4%. Corporate profits also surged, with profits from current production increasing by $400.9 billion, a substantial jump from the $74.4 billion increase in the first quarter.

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Underlying private domestic demand was stronger than previously estimated. Real final sales to private domestic purchasers, which includes consumer spending and gross private fixed investment, increased 4.2 per cent in the second quarter, revised up from the earlier estimate of 3.9 per cent.