Research
August 26, 2026
GDP
U.S. economy grew 1.5% in Q2 as consumer and business spending rebounded
The U.S. economy expanded at a 1.5% annualized rate in the second quarter of 2026, down from 2.1% growth in the first quarter. While the latest revision left the headline GDP figure unchanged, it included modest adjustments across major components, with stronger-than-previously estimated growth in services spending and nonresidential investment offset by slightly weaker goods consumption.
Beneath the headline figure, economic momentum was stronger than overall GDP growth suggests. Consumer spending and fixed investment, key measures of underlying domestic demand, increased at a robust 4.2% annualized rate in the second quarter, more than doubling the 1.8% pace recorded in the first quarter. The pickup reflects renewed strength in both household and business spending after two quarters of comparatively subdued growth.
At the same time, several temporary factors weighed on overall economic growth, including a wider trade deficit, slower inventory accumulation, and a decline in federal government spending.
Looking ahead, the National Restaurant Association expects the economy to remain resilient. Real GDP is forecast to increase 2.2% in 2026 before accelerating to 2.5% growth in 2027. Even so, uncertainty and affordability challenges are likely to persist, with geopolitical risks, including the ongoing conflict involving Iran, continuing to pose potential headwinds to the outlook.
Digging into the data, consumer spending strengthened considerably in the second quarter, rising at a 3.4% annual rate after softer gains in the prior two quarters. Goods spending increased by 4.3%, the strongest pace since the Q4 2024 but weaker than the previous estimate of 5.2%. Spending on services improved in this revision from 2.2% in the prior estimate to 3.1%. Overall, personal consumption expenditures contributed 2.31 percentage points to real GDP growth in Q2, a sharp improvement from just 0.37 percentage points in the first quarter and a clear sign that consumers became more willing to spend.
Business investment also remained a bright spot, although overall investment activity was mixed. Fixed investment increased at a healthy 7.0% annual rate in Q2, building on a 6.5% gain in the first quarter. As in the previous quarter, growth was driven by strong increases in equipment investment (+13.6%) and intellectual property products investment (+8.8%), reflecting continued spending on artificial intelligence and other productivity-enhancing technologies.
By contrast, investment in structures fell 1.8%, marking its tenth consecutive quarterly decline. One encouraging development was residential investment, which rose 1.3% and posted its first increase since Q4 2024. Meanwhile, businesses scaled back inventory accumulation after modest stockpiling in recent quarters. As a result, gross private domestic investment contributed 0.48 percentage points to GDP growth in Q2, down from 1.35 percentage points in Q1.
Trade remained a headwind for economic growth. Net exports reduced real GDP growth by 1.14 percentage points in the second quarter, marking the third consecutive quarter in which trade weighed on the economy. Imports increased 12.5% at an annual rate, outpacing the 4.5% gain in exports and widening the trade drag on growth.
Government spending also exerted modest downward pressure on GDP. Federal government expenditures declined for the second time in the past three quarters, subtracting 0.27 percentage points from growth, with spending down 2.7% over the past year. In contrast, state and local government spending rose 1.1% at an annual rate, adding 0.10 percentage points to overall GDP growth, although that represented a slower pace than the 1.7% increase recorded in the first quarter.
Beneath the headline figure, economic momentum was stronger than overall GDP growth suggests. Consumer spending and fixed investment, key measures of underlying domestic demand, increased at a robust 4.2% annualized rate in the second quarter, more than doubling the 1.8% pace recorded in the first quarter. The pickup reflects renewed strength in both household and business spending after two quarters of comparatively subdued growth.
At the same time, several temporary factors weighed on overall economic growth, including a wider trade deficit, slower inventory accumulation, and a decline in federal government spending.
Looking ahead, the National Restaurant Association expects the economy to remain resilient. Real GDP is forecast to increase 2.2% in 2026 before accelerating to 2.5% growth in 2027. Even so, uncertainty and affordability challenges are likely to persist, with geopolitical risks, including the ongoing conflict involving Iran, continuing to pose potential headwinds to the outlook.
Digging into the data, consumer spending strengthened considerably in the second quarter, rising at a 3.4% annual rate after softer gains in the prior two quarters. Goods spending increased by 4.3%, the strongest pace since the Q4 2024 but weaker than the previous estimate of 5.2%. Spending on services improved in this revision from 2.2% in the prior estimate to 3.1%. Overall, personal consumption expenditures contributed 2.31 percentage points to real GDP growth in Q2, a sharp improvement from just 0.37 percentage points in the first quarter and a clear sign that consumers became more willing to spend.
Business investment also remained a bright spot, although overall investment activity was mixed. Fixed investment increased at a healthy 7.0% annual rate in Q2, building on a 6.5% gain in the first quarter. As in the previous quarter, growth was driven by strong increases in equipment investment (+13.6%) and intellectual property products investment (+8.8%), reflecting continued spending on artificial intelligence and other productivity-enhancing technologies.
By contrast, investment in structures fell 1.8%, marking its tenth consecutive quarterly decline. One encouraging development was residential investment, which rose 1.3% and posted its first increase since Q4 2024. Meanwhile, businesses scaled back inventory accumulation after modest stockpiling in recent quarters. As a result, gross private domestic investment contributed 0.48 percentage points to GDP growth in Q2, down from 1.35 percentage points in Q1.
Trade remained a headwind for economic growth. Net exports reduced real GDP growth by 1.14 percentage points in the second quarter, marking the third consecutive quarter in which trade weighed on the economy. Imports increased 12.5% at an annual rate, outpacing the 4.5% gain in exports and widening the trade drag on growth.
Government spending also exerted modest downward pressure on GDP. Federal government expenditures declined for the second time in the past three quarters, subtracting 0.27 percentage points from growth, with spending down 2.7% over the past year. In contrast, state and local government spending rose 1.1% at an annual rate, adding 0.10 percentage points to overall GDP growth, although that represented a slower pace than the 1.7% increase recorded in the first quarter.
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