Second-Quarter GDP Growth Holds at 1.5%, Consumer Spending Stays Strong While Imports Drag Down Headline Number

The U.S. economy grew at a 1.5% annualized pace in the second quarter, the Commerce Department's Bureau of Economic Analysis said Wednesday in its second estimate. The number is unchanged from the first reading and down from 2.1% growth in the first quarter.

That headline slowdown is misleading on its own. Consumer spending, which makes up roughly 70% of U.S. economic activity, jumped to a 3.4% annual rate, up sharply from just 0.5% in the January-March period, according to the Commerce Department. Business investment excluding housing rose at an 8.5% pace, driven by the artificial intelligence buildout.

Imports Did the Damage

The drag came almost entirely from trade. Imports surged at a 12.5% annual rate from April through June, largely due to a wave of computer chip and AI-hardware shipments, and that alone sliced 1.64 percentage points off GDP growth, the Associated Press reported. Imports get subtracted from GDP because the measure only counts domestic production, so a company buying more foreign-made chips to build U.S. data centers can actually make headline growth look weaker even as investment booms.

Breitbart's writeup, sourcing the same BEA data, put the trade drag at a full percentage point and noted government spending also fell, with federal spending down 4.1% annually and nondefense spending contracting 12.9%, partially offset by a 2.4% rise in defense spending. Both figures describe the same underlying data set. The discrepancy in exact drag amounts reflects different components of the trade and inventory accounts.

A separate measure that strips out volatile government spending and trade, called final sales to private domestic purchasers, grew at 4.2% according to the AP's math and 3.9% according to Breitbart's. Both cited it as the strongest reading in roughly two years and a better gauge of underlying economic momentum than the headline number.

Inflation Isn't Cooperating

The same day, Commerce reported that the Fed's preferred inflation gauge rose 0.2% month-over-month in July, with prices up 3.7% from a year earlier, matching June's annual pace, according to the Bureau of Economic Analysis release covered by the AP and Fortune. That's nearly double the Federal Reserve's 2% target. Core PCE, which strips out food and energy, also rose 0.2% on the month and was up 3.3% from a year earlier.

The Epoch Times, citing the BEA's second GDP estimate released Aug. 26, reported the GDP price index — a broader measure of what U.S. producers charge — jumped to 6.4%. The outlet tied this to elevated energy costs stemming from the Iran conflict. The AP noted inflation has worsened since the U.S. and Israel struck Iran in late February, when annual inflation stood at 2.9%.

Whether the Iran-driven energy spike is the primary inflation culprit or one factor among several remains unclear. Tariffs, AI-driven demand for chips and computers, and continued consumer spending strength all get named across these reports, but none of the sources isolate a single cause with certainty. The Epoch Times noted its own inflation gauge could ease as oil and gas markets stabilize, but cautioned that could take time.

Reading The Growth Number Honestly

Skeptics of the "everything is fine" framing have a fair point: 1.5% growth is a real deceleration from 2.1% in the first quarter, and a shopper facing 3.7% annual inflation with wages not keeping pace isn't going to feel reassured by a GDP subcomponent buried three paragraphs into a government report.

But the composition of the slowdown matters. A trade deficit driven by importing AI infrastructure components, not a collapse in consumer or business demand, is a fundamentally different economic story than a recession signal. Personal income rose 0.4% in July, beating expectations, and the personal savings rate ticked up to 3%, according to the Epoch Times' citation of BEA data. This does not fit the profile of a household sector in retreat.

Breitbart's framing credited the 2025 tax legislation, including expensing rules for capital expenditures, with fueling the investment surge. This claim is attributable to the outlet's own analysis rather than to the BEA report itself. The Commerce Department's data doesn't attribute causation to specific legislation. It simply reports the investment totals.

What Comes Next

Wednesday's release was the second of three government looks at second-quarter growth. The final revision is due Sept. 30, according to the AP. The Atlanta Fed's GDPNow model was tracking third-quarter growth at 4%, while the New York Fed's Nowcast pegged it at a more modest 2.3%, per the Epoch Times. This gap underscores real uncertainty about whether Q2's strength carries forward.

With inflation stuck at 3.7% and the midterms 10 weeks away, the open question is whether the Federal Reserve moves on interest rates before voters go to the polls, and whether Trump's threatened new tariffs on Canada and China add another cost pressure on top of an already elevated GDP price index.