U.S. economy grows at 1.5% rate in second quarter
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The U.S. economy grew at a 1.5% annualized rate in the second quarter, the government said on Thursday, capturing a three-month stretch shaped by the Middle East conflict and a surge in energy prices.
Why it matters: Consumer spending and business investment fueled by AI spending remained the economy's standout growth engines in the spring.
By the numbers: The 1.5% growth rate is slightly slower than the 1.8% growth that economists anticipated.
- It follows 2.1% annualized growth in the January-March period and 0.5% growth in the final three months of 2025.
Zoom out: GDP can be affected by volatile swings in trade and inventories, so economists often look to a narrower measure as a cleaner gauge of underlying demand.
- Real final sales to domestic purchasers rose at a robust 3.9% annualized pace in the second quarter, after increasing 1.7% in the prior quarter.
- The measure captures spending by U.S. households, businesses and governments while stripping out trade and inventory fluctuations that don't say much about the broader economy.
Zoom in: Consumer spending, which accounts for roughly two-thirds of U.S. economic activity, rose at a 3.2% annualized rate, up from the 0.5% pace in the first quarter.
- Business investment increased at an annualized 8.4% rate, boosted by spending for equipment and intellectual property — categories that reflect the ongoing buildout of AI infrastructure.
- Trade subtracted more than 1 percentage point from headline GDP growth, as stronger imports weighed on the headline figure. Business inventories also weighed on growth.
The big picture: Federal Reserve chairman Kevin Warsh said on Wednesday that the U.S. economy is showing "impressive resilience, even with recent shocks," while calling strong business investment its "most striking feature" amid a surge in AI-related capital spending.
- The combination of still-elevated inflation and resilient economic growth has fueled the case for keeping monetary policy restrictive. The Fed kept interest rates on hold on Wednesday, although three officials dissented in favor of a rate increase.
What to watch: The Commerce Department separately said on Thursday that the Fed's preferred inflation gauge cooled in June as the Middle East-driven surge in energy prices faded during a temporary pause in the fighting.
- The conflict has since intensified, pushing oil prices higher.
- The PCE price index fell 0.1% on the month as oil prices declined. Compared with the same month a year earlier, the index increased 3.7%. Core PCE increased by 0.1% and 3.3%, respectively.
- Personal income growth and consumer spending slowed from the prior month.
