Washington, Jul 30 (AP) The US economy expanded at a sluggish 1.5% pace from April through June as rising imports weighed on growth. But consumer spending rose. And the Federal Reserve's favoured measure of inflation grew more slowly last month, but remained above the central bank's 2% target.

The Commerce Department reported Thursday that growth in US gross domestic product — the nation's output of goods and services — decelerated from 2.1% in the first three months of 2026 and came in below economists' expectations. But consumer spending — which accounts for about 70% of US economic activity — increased at a 3.2% annual clip, up from 0.5% in the January-March period.

Business investment, excluding housing, rose at an 8.4% pace, down from 10.6% from January through March but strong, reflecting a surge in investment in artificial intelligenc e.

Imports are subtracted from the economic figures because GDP is only supposed to count what is produced in the United States. Imports rose at an 11.5% pace, partly on a surge in shipments of computer chips and other products that support AI investment. The imports shaved 1.5 percentage off second-quarter GDP growth.

The Commerce Department also said Thursday that its personal consumption expenditures (PCE) price index, the one favoured by the Fed, rose 3.7% last month from June 2025 , down from a 4.1% year-over-year increase in May. Excluding volatile food and energy prices, so-called core consumer prices were up 3.3% from a year earlier, little-changed from 3.4% increase in May.

The Fed on Wednesday chose to leave its benchmark interest rate unchanged for the fifth straight meeting. But three regional Fed presidents dissented, saying they wanted to raise rates to combat elevated inflation.

Higher costs have frustrated Americans ahead of November's midterm elections, which will determine whether President Donald Trump's Republicans keep full control of Congress The American economy has been surprisingly resilient in the face of the Iran war and the spike in energy prices it caused. The job market has bounced back this year from a lackluster 2025, giving consumers the wherewithal to spend. Employers are adding an average 92,000 jobs a month this year, compared with fewer than 10,000 a month in 2025 when high interest rates and President Donald Trump's erratic use of tariffs discouraged businesses from hiring.

Still, Americans remain frustrated over the high cost of living as inflation remains stubbornly stuck above the Federal Reserve's 2% target.

Thursday's GDP report was the first of three Commerce Department estimates of second-quarter economic growth. (AP) AMS

Economic growth and persistent inflation shaped slower output, import pressures, and continued interest-rate restraint despite resilient consumer spending. United States economic growth slowed in the second quarter as increased imports reduced gross domestic product growth, despite stronger consumer spending and business investment linked to artificial intelligence. The preferred inflation measure moderated but remained above the central bank's target, with core consumer prices showing limited change. The benchmark interest rate was retained for a fifth consecutive meeting, though some regional presidents supported an increase to address elevated inflation. Employment growth and consumer spending continued to support economic resilience amid high living costs and energy-price pressures.