The U.S. economy expanded at a 1.5 percent annualized pace in the second quarter of 2026, down sharply from 2.1 percent in the first three months of the year, as consumer spending moderated and government outlays declined.
The Commerce Department's advance estimate, released in late July, showed that growth was supported by private investment and exports, which partially offset weaker personal consumption expenditures and reduced federal and state spending. The result fell short of economist expectations and reinforced concerns that the post-pandemic economic expansion is losing momentum.
Consumer spending, which accounts for roughly two-thirds of U.S. economic activity, grew at a slower clip than in previous quarters. Analysts attributed the deceleration to a combination of still-elevated prices, higher borrowing costs, and gradual exhaustion of the excess savings that had buoyed household balance sheets in prior years. The personal savings rate ticked higher, suggesting households are becoming more cautious.
Business investment held up better, with capital expenditures on equipment and intellectual property products contributing positively to growth. The export sector also provided a modest lift, though the strong dollar continued to weigh on manufacturers competing in global markets. Residential investment remained sluggish, reflecting high mortgage rates near 6.5 percent that have kept many buyers and sellers on the sidelines.
Government spending subtracted from growth, as both federal defense and nondefense outlays contracted, along with state and local government expenditures. The pullback reflects the expiration of pandemic-era stimulus programs and tighter fiscal constraints facing public sector budgets.
The slowdown comes as the Federal Reserve maintains interest rates in a range of 3.50 percent to 3.75 percent, with policymakers divided over whether to cut, hike, or hold steady. Investors are now looking toward the July jobs report and August inflation data for clues about the central bank's next move, with many economists forecasting a modest growth pickup in the second half of the year if the Fed begins easing.
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