U.S. economic growth decelerated in the second quarter, with the Commerce Department’s Bureau of Economic Analysis reporting a 1.5% annualized increase in gross domestic product (GDP). This figure fell short of economists' expectations, who had anticipated a 2.1% growth rate. Estimates from analysts ranged from a low of 0.8% to a high of 2.9%.
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The slowdown is attributed to a widening trade deficit, although consumer spending rebounded significantly, rising at a 3.2% rate, following a sharp drop to 0.5% during the first quarter. Factors supporting consumer spending included larger tax refunds this year, which helped offset increased gasoline prices due to ongoing conflict in the Middle East. High-income households have also contributed to this spending surge, benefiting from strong asset price growth. Events like the FIFA World Cup and midterm election-related expenditures have further stimulated economic activity.
Despite these positive indicators, economists caution that the ongoing U.S.-led war with Iran, now in its sixth month, poses risks to future demand and economic stability in the latter half of the year. Following a recent Federal Reserve meeting, the central bank maintained interest rates in the 3.50%-3.75% range, despite dissent among some members who favored an increase. The Fed acknowledged solid economic expansion but highlighted heightened uncertainty due to geopolitical tensions.
Additionally, average gasoline prices have risen back above $4 per gallon, and with wages struggling to match inflation, households have increasingly relied on their savings to sustain spending. Analysts suggest that this trend may not be sustainable and that consumers might start prioritizing savings amid economic uncertainty.