US GDP Growth Slows to 1.5% in Q2, Misses Expectations Amid High Inflation

The U.S. economy experienced a significant slowdown in the second quarter, with gross domestic product (GDP) growth decelerating to an annual rate of 1.5%. This figure fell considerably short of market expectations, which had predicted a 2.1% expansion, and marked a noticeable decrease from the 2.1% growth recorded in the first quarter.

According to data from the U.S. Bureau of Economic Analysis (BEA), the economic expansion was supported by increases in consumer spending, investment, and exports. However, these positive contributions were partially offset by a downturn in government spending. Imports, which are subtracted from GDP calculations, saw a slight decrease in their growth rate, rising 11.5% in the second quarter compared to 11.8% in the first.

Despite the weaker overall growth, a key measure of final sales to private domestic purchasers, which combines consumer spending and gross private fixed investment, showed acceleration. This metric increased to 3.9% in the second quarter, up from 1.7% in the first quarter, indicating underlying strength in private sector demand.

However, the report also underscored persistent inflationary pressures. The price index for gross domestic purchases surged by 5.7% in the second quarter, a substantial increase from the 3.6% rise in the previous quarter. The Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, also climbed, rising 5.1% compared to a 4.6% increase in the first quarter. Even when excluding volatile food and energy prices, the core PCE price index saw a solid increase of 3.4%.

These disappointing GDP figures and persistent inflation data emerged shortly after the Federal Reserve concluded its latest monetary policy meeting. On Wednesday, the Fed decided to maintain its target range for the federal funds rate at 3.5-3.75 percent. This marks the fifth consecutive meeting where the central bank has adopted a wait-and-see approach, as policymakers grapple with the challenge of balancing slowing economic growth with elevated consumer prices.