US Q2 GDP Annualized Growth at 1.5% Misses Expectations, PCE Price Index Rises 3.4%

The US economic growth rate in the second quarter fell short of expectations, but the strong performance of consumption and corporate investment indicates that domestic demand remains resilient.

Preliminary data released by the Bureau of Economic Analysis of the US Department of Commerce on Thursday showed that the annualized growth rate of real GDP in the second quarter was 1.5%, lower than market expectations. The decline in net exports dragged down the overall data, but consumer spending and business investment remained strong, offsetting external pressures to some extent.

Meanwhile, the initial estimate for the annualized quarterly change in the US core Personal Consumption Expenditures (PCE) price index in the second quarter was 3.4%. Federal Reserve Chair Walsh described the economy's resilience as "impressive" after Wednesday's interest rate decision, specifically pointing out that the strong momentum in business investment is currently the "most striking" feature of the economy.

Against the backdrop of the ongoing impact of the Iran war, the US economy has so far demonstrated strong resistance to pressure, but external uncertainties still constrain growth prospects.

Net Exports Drag on Overall Growth, Consumption Shines

The annualized GDP growth rate of 1.5% in the second quarter was significantly suppressed by fluctuations in net exports. Net export data has historically been highly volatile between quarters, and this decline obscured the true strength of domestic demand to some extent.

Consumer spending, the core pillar of the US economy accounting for about two-thirds of total economic activity, grew by 3.2% in the second quarter. According to separate data released on Thursday, real consumer spending increased by 0.4% month-on-month in June, matching the increase in July 2025 and marking the strongest performance in nearly a year.

A decline in gasoline costs at the end of the quarter, tax refunds higher than in previous years, and promotional activities jointly supported household consumption. This partially hedged against the negative impact of the Iran war pushing up prices and suppressing consumer confidence.

AI Investment Boom Becomes a Key Growth Engine

Business investment continued its strong momentum in the second quarter, becoming an important support for economic growth.

The boom in artificial intelligence investment is the core driver behind the continuous expansion of business investment. Tech giants such as Meta Platforms and Microsoft are building data centers on a large scale and continuing to increase their investments in the AI sector, although some investors remain skeptical about the return prospects.

This wave of AI capital expenditure has not cooled down despite the Federal Reserve maintaining high interest rates, demonstrating companies' high confidence in the long-term prospects of AI and providing additional supply-side support for this round of economic growth.

Ongoing Impact of Iran War, Inflation Pressures Ease

The main external risk currently facing the economy stems from the Iran war. Since the outbreak of the conflict, energy and related prices have faced upward pressure, dragging down consumer and corporate confidence. However, the fall in gasoline prices at the end of the quarter provided some breathing room for inflation data.

The PCE price index fell by 0.1% month-on-month in June, while the core PCE rose slightly by only 0.1%, keeping overall inflation moderate. This provided the policy basis for the Federal Reserve's decision to keep interest rates unchanged on Wednesday.

At present, the full transmission effect of the war on the economy remains to be seen. Next, the market will closely monitor the trends in consumption and employment data to assess whether the US economy can continue to withstand external shocks.