Real GDP (Q2-2026, advanced estimate)  

Real GDP moderated in Q2, but domestic demand was strong

• The U.S. economy expanded by 1.5% quarter-on-quarter (q/q, annualized) in the second quarter, decelerating from 2.1% in the first quarter, and weaker than the consensus forecast of 2.0%.
• Underneath the softer headline, consumer spending rose by a healthy 3.2% q/q, well above Q1's 0.5%. Goods and services spending accelerated to 5.2% and 2.2% respectively.
• Business investment was also strong. Outlays grew by 8.4% q/q, supported by continued strength in equipment spending (+15.2%) and another solid gain in intellectual property products (+8.8%). Meanwhile, spending on structures (-5.0% q/q) declined for a tenth consecutive quarter. Residential investment (1.5%) rebounded modestly as home sales picked up with the spring buying season.
• Government spending (-0.8%) declined as the post-shutdown rebound in the first quarter faded.
• International trade shaved a full percentage point from growth in Q2, as a surge in imports (+11.5%) was only partly offset by a solid gain in exports (+4.5%). The gain in imports was driven by a pick-up in goods, though services were also marginally higher. Inventory investment also shaved 0.7 percentage points off of Q2 GDP.
• Final sales to private domestic purchasers, a better gauge of underlying demand as it includes only household consumption and fixed investment, rose by a very healthy 3.9%, an acceleration from Q1's gain of 1.7%.
• Core PCE inflation rose 3.4% q/q annualized, down a percentage point relative to Q1's 4.4%.
  
   

Key Implications

• Despite a seemingly disappointing headline, the advance estimate for real GDP showed that the economy remains healthy overall. Consumption growth was primed for a rebound after weather-related disruptions acted as a drag in Q1, but still came in well above expectations. Growth in consumer spending on discretionary items like eating out and recreation are also positive indicators. Moreover, while business investment remained concentrated in AI-related categories, it also expanded to other categories like industrial and transportation equipment. The primary constraint on growth in Q2 was strong import growth, which shaved 1.5 percentage points off total growth for a second consecutive quarter.
• This was a holistically solid reading for the economy, which when combined with moderate stabilization in the labor market provides a steady hand-off to the second half of the year. While rising interest rates, volatile energy prices, and new tariff policies could act as near-term headwinds, we expect the economy to be able to sustain growth of roughly 2% through the second half of the year on the back of continued investments in AI and moderate growth in consumer spending.
  
   
  
  
   
   

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.