US economy grows at 1.5% rate in second quarter, missing expectations

The US economy grew at a 1.5% annualized rate in the second quarter according to the Bureau of Economic Analysis advance estimate, below the roughly 2.1% consensus and a deceleration from the 2.1% pace recorded in the first quarter. The BEA attributes the slowdown mechanically to weaker government spending, decelerating investment and softer exports, with a larger import drag than in the prior quarter.

The headline understates the private-sector picture in a way that matters for interpretation. Real final sales to private domestic purchasers, the measure that strips out trade, inventories and government, rose 3.9% in the quarter against 1.7% in the first. Consumer spending accelerated quarter over quarter and was the largest single positive contributor to the headline, worth roughly two percentage points. A 1.5% print built on 3.9% private domestic demand describes a different economy than 1.5% alone suggests.

The inflation detail in the same release cuts both ways. The PCE price index rose 5.1%, up from 4.6% in the first quarter, and the broader GDP purchases price index rose 5.7% against 3.6%. Core PCE, which excludes food and energy, decelerated to 3.4% from 4.4%. Nominal GDP grew 7.9%. Commentary attributing the growth miss to tariffs and to the Iran conflict has come from analysts rather than from the BEA release itself, which does not assign causes in those terms.

The report lands one day after the Federal Open Market Committee held its target range at 3.5% to 3.75% in a 9 to 3 vote, with all three dissenters preferring a rate increase. That combination, a growth miss alongside firm headline inflation and hawkish dissent, is the tension for markets to resolve. Northlight Asset Management's Chris Zaccarelli flagged the risk that the economy is slowing too quickly, while Oxford Economics' Michael Pearce noted non-AI investment posted its best quarter in three years and expects the recovery to broaden. What to watch is the second estimate and whether private demand strength holds.