US GDP growth dips as inflation and trade deficits pressure economy

SaveSharefacebookxwhatsapp-strokecopylinkThe Personal Consumption Expenditure Price (PCE) Index report, one of the US Federal Reserve’s key metrics for gauging the rate of inflation, increased 3.7 percent for June [File: Carlos Osorio/Reuters]By Andy Hirschfeld and ReutersPublished On 30 Jul 202630 Jul 2026Economic growth in the United States slowed in the second quarter amid a growing trade deficit and tensions between the US and Iran which weighed on global fuel prices.The US Gross Domestic Product (GDP), a measure of goods and services, grew by 1.5 percent between April and June, marking a slowdown from 2.1 percent growth in the first quarter of 2026, according to the Commerce Department’s Bureau of Economic Analysis report released on Thursday.Recommended Stories list of 4 itemslist 1 of 4Libya electricity blackout protests expose country’s failing gridlist 2 of 4US Fed holds interest rates steady, citing ‘elevated’ inflationlist 3 of 4Sam Altman meets lawmakers on back of OpenAI agents hacking companieslist 4 of 4Why is Saudi Arabia forming a coalition to protect the Red Sea?end of listConsumer spending saw a bump of 3.2 percent for the quarter, both on the back of generous tax refunds from US President Donald Trump’s ‘One Big Beautiful Bill Act’ as well as heightened petrol prices that cost consumers.Fuel prices are on the upswing after a brief reprieve. The average price for a gallon of petrol (3.78 litres) is $4.09, up from $3.84 this time last month, according to the American Automobile Association (AAA), which tracks daily petrol prices. By comparison, the average price was $2.98 when the US and Israel first struck Iran on February 28 .Analysts also point to the artificial intelligence spending boom as a reason for the surge, even as those are heavily import reliant and contributing to trade deficits.“Overall, the economy continues to rely on technology investment,” Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told Al Jazeera.That will likely continue into third-quarter reports, which will take into account the month of July. On Monday, it was reported that Nvidia is in talks to make a $250m investment in OpenAI.However, there are concerns about how long such investments will last amid questions over circular financing propping up the sector. “Data centres continue to drive investment and economic growth, increasing the sector’s role in the economy while raising questions about its sustainability,” Ziemba said.Meanwhile, the Personal Consumption Expenditure Price (PCE) Index report, one of the US Federal Reserve’s key metrics for gauging the rate of inflation, increased 3.7 percent on an annual basis for the month of June after a 4.1 percent surge in May.The slowdown was marked by a brief retreat in petrol prices last month before they climbed higher again over the past month.“Today’s report is a snapshot of an economy under a ceasefire that no longer exists. Even with last month’s temporary inflation relief, prices are still elevated and families are saving less as they try to keep up,” Alex Jacquez, a member of the National Economic Council under former US President Joe Biden, said in a note provided to Al Jazeera.On Wednesday, the US Federal Reserve opted to maintain interest rates at 3.5-3.75 percent.US markets are on the upswing in midday trading, largely driven by an increase in Microsoft stock amid better-than-expected sales and growth in cloud services. Markets have also risen following the PCE and GDP reports.The tech-heavy Nasdaq is up 2.6 percent, with the S&P 500 following at 1.2 percent and the Dow Jones Industrial Average up 0.5 percent.Gold prices, which are typically considered a safe investment during economic uncertainty, extended their gains by 1.9 percent to $4,108.30 per ounce after rising 2 percent on Wednesday.