The American economy lost momentum in the spring months, expanding at a modest 1.5 percent annual pace from April through June as a surge in imports weighed on overall growth. The Commerce Department reported Thursday that the figure marked a slowdown from the 2.1 percent growth posted in the first three months of the year and fell short of what economists had been expecting. Yet beneath the sluggish headline number were signs of genuine resilience, none more important than the willingness of consumers to keep spending despite years of elevated prices and political uncertainty.
Consumer spending, which drives roughly 70 percent of all economic activity in the United States, jumped at a 3.2 percent annual rate in the second quarter after barely growing in the first three months of the year. Business investment outside of housing also remained robust, rising at an 8.4 percent pace fueled largely by companies pouring money into artificial intelligence infrastructure. A broader measure of economic health that strips out volatile trade and government spending figures expanded at a healthy 3.9 percent clip, more than double its first-quarter performance. The catch is that much of the investment boom relied on imported computer chips and other components, and since imports are subtracted from gross domestic product calculations, they shaved roughly 1.5 percentage points off second-quarter growth.
Inflation continued its slow march downward but remained stubbornly above the Federal Reserve’s comfort zone. The central bank’s preferred inflation gauge, the personal consumption expenditures price index, rose 3.7 percent in June compared with a year earlier, an improvement from the 4.1 percent annual increase recorded in May. Gasoline prices plunged more than 9 percent during the month alone, helping push overall prices down slightly from May levels. But core inflation, which excludes food and energy costs, held steady near 3.3 percent, leaving price pressures well above the Fed’s 2 percent target for yet another month.
The persistence of inflation has created friction within the central bank itself. On Wednesday, the Fed opted to hold its benchmark interest rate unchanged for the fifth consecutive meeting, but three regional bank presidents broke ranks to call for higher rates, signaling growing impatience among some officials with the slow progress on prices. The divide comes at a delicate moment for the economy, which has weathered both the fallout from the Iran war and a related spike in energy costs better than many analysts anticipated. Employers have added an average of 92,000 jobs per month this year, a sharp improvement over hiring totals in 2025 when high borrowing costs and unpredictable tariff policies kept businesses cautious about expanding payrolls.
Still, for most Americans, the daily reality of high prices overshadows the positive data points, and that frustration is coloring the political landscape heading into November’s midterm elections. With control of Congress at stake less than 100 days out, voters remain deeply sensitive to anything that threatens their cost of living. A new AP-NORC poll found that nearly three-quarters of adults consider it extremely or very important to keep domestic oil and gas prices from climbing further, up noticeably since March, while public sentiment toward the Iran conflict has soured amid concerns about its ripple effects on household budgets.
