U.S. Economy Slows in Q2, Consumer Spending Remains Strong
Quick Look
- The U.S. economy grew at a 1.5% annual rate in Q2, a slowdown from Q1's 2.1%, mainly due to decreased government spending and increased imports.
- Consumer spending, however, remained robust at 2.1%, despite rising inflation and falling savings.
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Why It Matters
The U.S. economy's Q2 growth rate of 1.5% marked a slowdown from Q1's 2.1%, influenced by reduced government spending and increased imports.
The U.S. economy grew more slowly this spring than it did earlier in the year, but consumers continue to spend freely.
Gross domestic product — the broadest measure of economic activity — grew at an annual rate of 1.5% in April, May and June, according to a report Thursday from the Commerce Department. That's a modest slowdown from the first three months of the year when GDP grew at a 2.1% pace. A decline in government spending and a jump in imports, which count against the domestic tally, account for much of the change.
Consumer spending continues to power the economy, growing at a solid 2.1% pace during the second quarter. It's not clear how long shoppers can keep that up, however, in the face of rising prices.
A separate report from the Commerce Department shows prices in June were up 3.7% from a year earlier. Inflation has been outpacing wage gains in recent months, forcing shoppers to dip into savings or borrow money to support their spending. The personal savings rate fell to 2.7% in June — a three year low.
The Commerce Department's inflation yardstick is closely watched by the Federal Reserve. Prices have been climbing faster than the central bank would like. But the Fed opted not to raise its benchmark interest rate on Wednesday.
Trade swings weighed on GDP during the quarter. Exports rose during the quarter, but imports rose faster.
"Trade has gone up and down and all around and clearly the tariffs are swinging things around," said Mark Zandi, chief economist of Moody's Analytics. "One quarter it might add to growth. The next quarter it might subtract from growth. Net over time, it's kind of sort of a wash."
Open Questions
- How long can consumers sustain spending amid inflation?
- Will the Federal Reserve raise rates in the future?
- How will tariffs impact future trade balances?
