US economic growth was stronger than previously estimated in the second quarter of 2026, with real gross domestic product (GDP) rising at an annual rate of 2.2%, according to the third estimate released by the US Commerce Department. The latest estimate beat market expectations of 2.1% and gives a sharp upward revision from the second estimate, which had put GDP growth at 1.5%. The revision was due to major factors including stronger estimates for investment, consumer spending and government spending. The 0.7 percentage-point upward revision primarily reflected stronger investment, consumer spending and government spending than earlier estimates showed.
Consumer spending made the largest contribution to the 2.2% increase in real GDP during the quarter, with its contribution rising from about 2.1 percentage points in the advance estimate to 2.5 percentage points in the third estimate. Consumer spending increased at a healthy 3.8% annual pace, up from 0.7% in the January-March period, with spending helped by a strong stock market reflecting enthusiasm over artificial intelligence prospects. Investment also made a stronger contribution in the latest estimate, with business investment, excluding housing, rising at a 9% clip in the second quarter, reflecting the AI investment boom. Investment in housing rose 2.8%, ticking up for the first time since the end of 2024, as the housing market has been depressed by high mortgage rates. The more telling detail is that real final sales to private domestic purchasers increased 4.6%, up from 1.8% previously estimated and well above the revised 1.8% first-quarter pace. This measure combines consumer spending and private fixed investment, excluding inventories, government spending and trade, pointing to considerably stronger underlying private demand than the headline GDP figure alone suggests.
The overall growth number was dragged down by imports, which rose at a 12.6% annual pace from April through June, partly due to a surge in shipments of computer chips and other products that support artificial intelligence investment. Imports subtracted nearly 1.7 percentage points off second-quarter growth, as GDP is only supposed to count domestic production. The growth in GDP was spread across several parts of the economy, with private services and goods-producing industries recording strong gains. Real value added in private services-producing industries increased 2.5% in the second quarter, while private goods-producing industries increased 2.3%. The bureau noted that "the leading industry contributors to the increase in real GDP were real estate and rental and leasing, information, durable goods manufacturing, and finance and insurance." Real estate and rental and leasing was the biggest industry contributor, adding 0.57 percentage point. The information industry added 0.52 percentage point, and durable goods manufacturing and finance and insurance each contributed 0.50 percentage point. However, transportation and warehousing was the biggest drag, cutting 0.37 percentage point from GDP growth.
The latest GDP report showed encouraging inflation revisions, with core PCE prices lowered to 3.3% from 3.6% and headline PCE prices reduced to 5.0% from 5.3%. However, a downward revision does not mean inflation cooled across the board compared with the previous quarter: headline PCE inflation accelerated from a revised 4.2% in Q1, while core inflation slowed from 3.9%. The price index for gross domestic purchases increased 5.6% in the second quarter, while the personal consumption expenditures, or PCE, price index increased 5.0%. Current-dollar GDP increased 8.5% in the third estimate, up from the previous estimate of 8.0%. Corporate profits also posted a substantial increase, although the gain was trimmed from the previous estimate.
Despite the strong GDP growth, recent consumer sentiment data suggests the economy may be facing headwinds. US Consumer Confidence Plunged to the Lowest Level Since 2014 on September 29, 2026, with views of both present situation and future expectations declining dramatically. Consumer Sentiment Dropped in September to Just Above Record Lows on September 25, 2026, with Republican attitudes declining 20% from January 2026 levels, while Democrats are down 13% over the same period. The bond market reaction reflects concerns about the economy's underlying strength, with long-term yields rising despite slightly better than expected PCE price inflation readings. The US economy has proven surprisingly resilient in the face of fighting with Iran and the energy price spike it caused. As per Michael Pearce, chief U.S. economist at Oxford Economics, "The economy is increasingly reliant on AI gains and the corresponding wealth effects boosting higher-income households' spending power to fuel recent growth. The economy remains sensitive to a sudden reversal of optimism on AI."
