The Economy Grew Slower Than Expected, and Savings Just Hit a Four-Year Low

Keypoints:

• • Real GDP grew at an annual rate of 1.5% in the second quarter, down from 2.1% in Q1
  • Core inflation ticked up to 3.3%
  • Personal income rose just 0.2%, below the 0.3% economists expected
  • The personal savings rate fell to 2.7%, its lowest level in four years
  • Consumer spending still held up, rising 0.3% for the month

The U.S. economy kept growing during the second quarter, but the pace slipped again. The slowdown wasn't dramatic, yet it added another sign that economic momentum has become harder to sustain. 

The Bureau of Economic Analysis reported that real GDP expanded at an annual rate of 1.5% in the second quarter, down from 2.1% during the first three months of the year. Consumer spending, business investment, and exports all supported growth. Government spending moved lower, while imports increased. Since imports count as a subtraction in GDP calculations, both weighed on the final figure.

Inflation painted a less encouraging picture. Core PCE inflation, the Federal Reserve's preferred measure, rose to 3.3% for the quarter. The broader PCE price index increased at an annualized rate of 5.1%. Personal income edged up 0.2% during the month, falling short of the 0.3% economists expected. The gap was small, but it pointed to slower income growth.

The personal savings rate told an equally important story. It dropped to 2.7%, the lowest level in four years. Consumer spending still increased 0.3%, matching forecasts. With income growth staying modest, households leaned further on their savings to keep spending steady. That approach can only continue for so long before budgets begin to tighten.