The numbers come first. The U.S. economy grew at a 1.5% annual pace in the second quarter of 2026, the Commerce Department confirmed Wednesday — a deceleration from the 2.1% rate posted in the January-March period and unchanged from the department's first estimate.
The culprit was imports. Rising at a 12.5% annual clip from April through June, partly on a surge in computer chips and other products tied to artificial intelligence investment, imports sliced 1.64 percentage points off second-quarter GDP. Because gross domestic product counts only domestic production, every dollar of foreign goods purchased subtracts from the headline figure.
The underlying economy tells a different story. Consumer spending — roughly 70% of U.S. economic activity — accelerated to a 3.4% annual rate, a sharp rebound from the 0.5% pace recorded in the first quarter. Business investment, excluding housing, rose at an 8.5% pace, reflecting the ongoing AI infrastructure boom. A measure of the economy's underlying strength that strips out volatile government spending and trade numbers grew at a 4.2% rate, up from 1.7% in the first quarter. Housing investment ticked up as well, rising for the first time since the end of 2024.
Inflation, however, is not cooperating. The Commerce Department's report showed prices rose 3.7% in July compared with a year earlier — the same pace as June, but well above the Federal Reserve's 2% target. Inflation has worsened since the U.S. and Israel attacked Iran in late February, when it stood at 2.9%, as the conflict has kept energy prices elevated.
The political backdrop is sharpening. Stubbornly high prices are shaping up to be a key issue in the midterm elections, now just ten weeks away. President Donald Trump is threatening new tariffs on Canada and China, and spending on AI infrastructure has pushed up the cost of computers, gaming consoles, and semiconductors, according to the report. The third and final Commerce Department reading on second-quarter GDP is due September 30.
CEO Times' read: The 4.2% private-sector growth rate buried inside Wednesday's report is the figure that matters most to investors and business operators. Capital is flowing into AI infrastructure at a pace that distorts the trade balance and flatters import figures — a short-term drag that reflects long-term productive investment, not economic weakness. The real threat to the expansion is the inflation overhang: at 3.7% and holding, price pressure is eroding real wages, constraining the Fed's room to maneuver, and handing opponents a ready-made campaign message ten weeks before voters go to the polls. Free enterprise is doing its job. The policy environment — war-driven energy costs, tariff uncertainty, and a still-elevated price level — is the variable that could yet spoil the picture.
