US economic growth slows in second quarter but domestic demand robust

Despite the Middle East conflict, US consumer spending has remained resilient, in part thanks to bigger tax refunds this year

US economic growth slowed in the second quarter amid a widening in the trade deficit, but an acceleration in consumer spending and robust business investment in equipment related to the buildout of artificial intelligence infrastructure pointed to underlying strength.

Gross domestic product increased at a 1.5 per cent annualised rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of second-quarter GDP on Thursday.

Economists polled by Reuters had forecast GDP rising at a 2.1 per cent pace. Estimates ranged from a 0.8 per cent rate to a 2.9 per cent pace. The survey was, however, conducted before the release of June’s advance economic indicators report, which showed a moderate contraction in the goods trade deficit and retail inventories unchanged.

That data prompted some economists to cut their GDP estimates by as much as 0.8 percentage point to as low as a 1.5 per cent rate.

The economy grew at a 2.1 per cent pace in the first quarter. Consumer spending, which accounts for more than two-thirds of US economic activity, surged at a 3.2 per cent rate last quarter after abruptly slowing to a 0.5 per cent growth pace in the January-March quarter.

Despite the Middle East conflict, spending has remained resilient, in part thanks to bigger tax refunds this year, which provided a cushion for consumers against higher petrol prices stemming from the war.