US economy grew less than expected at 1.5% rate in second quarter

The US economy grew at an annualised rate of just 1.5 per cent in the second quarter of 2026, marking a sharp slowdown and falling short of Wall Street expectations as the Iran war rumbled on. Thursday’s figure from the Bureau of Economic Analysis was down from the 2.1 per cent growth rate in the first three months of the year and fell short of the 2 per cent figure forecast in a Bloomberg poll of economists. 

Growth was dragged down by lower government spending and a reduction in business investment and exports, the BEA said. That was offset slightly by an acceleration in consumer spending. The report suggests growth is flagging slightly in the world’s biggest economy as Donald Trump’s war in the Middle East enters its sixth month. 

American consumers have continued to spend even as they are squeezed by higher prices at the pump that have been spurred by disruption to Middle East energy infrastructure. Chunky investment by tech companies in building AI infrastructure has also helped to support growth, as have soaring exports by US oil producers.  

But stubbornly high inflation has still weighed on Americans. Markets were spooked on Wednesday after the Federal Reserve opted to hold interest rates steady, spurring concerns that the central bank will not be able to contain the war’s inflationary shock.