The US economy grew at an annual rate of 1.5% in the second quarter, below forecasts and down from 2.1% in the first quarter, as declines in government spending and inventories offset resilient consumer spending. Core inflation held at 3.3% in June, keeping price pressure well above the Federal Reserve's target.
US gross domestic product grew at an annual rate of just 1.5% in the second quarter, the Commerce Department said Thursday. That undershot the 1.8% growth rate economists surveyed by Dow Jones had expected and marked a slowdown from 2.1% in the first quarter.
Government spending and inventories drag on the headline number
The miss appeared to come from weaker federal outlays and shrinking stockpiles, not from household demand. Federal spending fell 0.3% and inventories dropped 0.7%, subtracting from the top-line figure.
Personal spending, meanwhile, rose 2.1% after a 0.4% gain in the first quarter. A broader gauge of underlying demand, final sales to private domestic purchasers, increased 3.9%. Gross private domestic investment rose 0.5%, exports increased 0.5% and imports fell 1.5%; exports typically add to growth while imports subtract from it.
Core inflation holds at 3.3% as the Fed keeps rates on hold
The Fed's preferred inflation gauge, core PCE, rose to an annual 3.3% in June, matching forecasts but still well above the central bank's 2% target. Headline PCE came in at an annual 3.7%, while the index itself fell a seasonally adjusted 0.1% for the month.
Energy prices tumbled 5.9% in June, with gasoline down 9.2%, as a temporary lull in Middle East fighting eased pressure, while housing costs rose just 0.2%. The report landed a day after a divided Federal Reserve voted 9-3 to hold its benchmark rate between 3.5% and 3.75%, with the three dissenting regional presidents citing concern about high prices and a lack of progress on the inflation side of the mandate.
Consumers dip into savings as war and tariffs weigh
Consumers kept spending even as they leaned on savings to do it. The personal savings rate slipped to 2.7%, the lowest level in four years.
The strain comes as the world's largest economy continues to weather the financial fallout from the war with Iran while businesses navigate tariffs, according to BBC News. Brent crude, the global benchmark, traded about $90 a barrel on Thursday, pushing average US gasoline prices back above $4 a gallon.
According to BBC News, new Fed chairman Kevin Warsh warned there was no "magic wand" to tackle rising prices.
Sources: Bureau of Economic Analysis, BBC News
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