US GDP Growth Softens Despite Strong Consumer, Investment

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessUS GDP Growth Softens Despite Strong Consumer, InvestmentThe US economy grew at a weaker-than-expected pace in the second quarter, though a pickup in consumer spending and solid business investment signaled underlying strength.Author of the article:Last updated 2 minutes ago You can save this article by registering for free here. Or sign-in if you have an account.Shoppers browse washer and dryer appliances for sale in Colma, California. Photo by David Paul Morris /Bloomberg(Bloomberg) — The US economy grew at a weaker-than-expected pace in the second quarter, though a pickup in consumer spending and solid business investment signaled underlying strength. THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountInflation-adjusted gross domestic product increased an annualized 1.5% in the three months through June, according to an advance estimate issued Thursday by the Bureau of Economic Analysis. That marked a deceleration from the start of the year in part due to a surge in imports.Consumer spending, which comprises about two-thirds of economic activity, rose at a stronger-than-expected 3.2% rate. Business investment continued to boom amid a rush to invest in artificial intelligence.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againA narrower metric of underlying demand known as final sales to private domestic purchasers climbed 3.9% in the second quarter, more than double the first quarter pace and the strongest since early 2023. That measure excludes net exports, inventories and government spending. The figures highlight an economy that’s so far powering through the fallout of the Iran war. While the conflict has pushed prices higher and weighed on sentiment, a slide in gasoline costs at the end of the quarter alongside higher-than-usual tax refunds and sales promotions helped support household spending. Separate data out Thursday showed inflation-adjusted consumer spending climbed a robust 0.4% in June, matching the strongest since July 2025. The Federal Reserve’s preferred measure of inflation — the personal consumption expenditures price index — fell 0.1% last month. Excluding food and energy, the gauge rose less than forecast. Business investment remained a key driver of growth in the second quarter. The massive AI investment push continued to play a critical role as did demand for industrial and transportation equipment.After the Fed decided to keep interest rates unchanged on Wednesday, Chairman Kevin Warsh described the economy’s resilience as “impressive” but noted its “most striking” feature is the strength of business investment. Big technology firms including Meta Platforms Inc. and Microsoft Corp. are aggressively building out data centers and investing in AI, despite investors’ concerns about whether it will pay off. The underlying details of the report are “considerably stronger than expected,” said Stephen Stanley, chief US economist at Santander US Capital Markets LLC. “I wouldn’t say that the economy was firing on all cylinders, but it was certainly driven by more than just the AI boom.” Net exports subtracted a percentage point from the calculation of GDP in the second quarter. That likely reflected a mix of factors, including efforts to get goods into the country before a new wave of tariffs and the rapid pace of capital investment. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Inventories stripped an additional 0.67 percentage point from GDP, suggesting many businesses drew down their inventories during the war.The strength in household outlays was fueled by spending on durable goods like furnishings and motor vehicles. Within services, consumers ramped up outlays on discretionary categories like recreation and food services and accommodation. The BEA report showed nonresidential fixed investment rose at an 8.4% pace. Investment in industrial equipment surged by the most since 2011, and outlays for transportation equipment jumped by the most in two years. Information processing equipment and software outlays rose at a strong, albeit slower rate. What Bloomberg Economics Says…“Beneath the softer GDP headline, domestic demand remained resilient in the second quarter. Consumer spending rebounded strongly — easing concerns about a consumer-led slowdown — even as gasoline prices surged during much of the quarter. Business investment in equipment remained robust, broadening beyond AI-related spending.”Federal government outlays declined, reflecting sales of crude oil from the Strategic Petroleum Reserve, according to the report. But because sales of the oil are reflected in other components of GDP, there is “no direct effect” on GDP. Even so, spending on national defense increased amid the war with Iran. Residential investment added to growth, though modestly, for the first time since late 2024. Elevated mortgage rates have generally restrained buyer demand and limited construction activity in recent years. Looking ahead, the recent flare-up in the Middle East and President Donald Trump’s new tariffs underscore the uncertainty around the outlook. Though the US central bank opted to keep rates unchanged on Wednesday, three policymakers voted to raise borrowing costs amid above-target inflation.But with layoffs limited, economists generally expect consumer spending to stabilize in the second half of the year. Executives at companies like JPMorgan Chase & Co. and Levi Strauss & Co. have underscored shoppers’ resilience, even as some like PepsiCo Inc. and General Mills Inc. have noted that Americans are growing more discerning in their spending.Consumers “looked through the price pressures and they powered on — the question is how much longer they will be able to do that,” said Pooja Sriram, senior US economist at Barclays. “Tax refunds have run out and income gains are slowing, so that cushion that we point to is getting smaller in the next quarter.”—With assistance from Mark Niquette, Jeffrey Sparshott, Julia Fanzeres and Maya Prakash.(Adds reaction from economists.)Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.