Economic growth slows to 1.5% as shoppers keep spending and AI imports bite

The economy grew at a sluggish 1.5% pace from April through June. But consumer spending stayed strong.

Growth in gross domestic product — the nation’s output of goods and services — decelerated from a 2.1% pace from January through March, the Commerce Department reported Wednesday.

The second-quarter growth number was unchanged from the department’s first estimate.

Still, consumer spending — which accounts for about 70% of U.S. economic activity — increased at a healthy 3.4% annual clip, up from 0.5% in the January-March period.

The lackluster growth was due to imports. They are subtracted from growth because GDP is meant to count only domestic production.

Imports rose at a 12.5% annual pace from April through June, partly due to a surge in shipments of computer chips and other products that support artificial intelligence investment, and sliced 1.64 percentage points off second-quarter growth.

Beyond the headline figures, the U.S. economy has proven surprisingly resilient amid the fight with Iran and the spike in energy prices it caused.

Business investment, excluding housing, rose at an 8.5% pace in the second quarter, reflecting the AI investment boom. And a measure of the economy’s underlying strength — which strips out volatile government spending and trade numbers — grew at a strong 4.2% rate, up from 1.7% in the first quarter.

Investment in housing rose, ticking up for the first time since the end of 2024. The housing market has been depressed by high mortgage rates.

Wednesday’s report was the second of three Commerce Department reports on second-quarter GDP growth.

The third and final report is due Sept. 30.

Also on Wednesday, the U.S. reported that an inflation measure closely watched by the Federal Reserve was unchanged last month in the latest sign that many Americans are still struggling with higher costs.

The Commerce Department’s report showed that prices rose 3.7% in July compared with a year earlier, but the pace was the same as June.

Inflation has worsened since the U.S. and Israel attacked Iran in late February, when it stood at 2.9%. It’s noticeably above the Fed’s target of 2%.

Stubbornly high prices are shaping up to be a key issue in the midterm elections, now just 10 weeks away, particularly as the Iran war keeps gas prices high, President Trump is threatening new tariffs on Canada and China, and spending on AI infrastructure has pushed up the cost of computers, gaming consoles, and semiconductors.

Wiseman writes for the Associated Press.