Growth Slows While Prices Remain High

Growth Slows While Prices Remain High

GDP misses expectations and the savings rate fell to a four-year low

Today, the Bureau of Economic Analysis (BEA) released its advance estimate of second-quarter GDP, finding that the economy grew at an annualized rate of 1.5%. The economy continues to grow more slowly than it did in 2025, growing at an average annualized pace of 1.8% in the first half of 2026, compared to 2.1% in the first half of 2025.

The BEA also released its June Personal Consumption Expenditures (PCE) inflation data, which showed that prices rose 3.7% over the past year. That increase exceeded the 3.5% inflation rate reported in the June Consumer Price Index. Yet even this elevated reading does not capture the renewed price pressures that have emerged since Trump’s short-lived ceasefire collapsed, reversing the June drop in gas prices. Since the collapse of the ceasefire in early July, oil prices have climbed again, and gas prices are back above $4.00 per gallon. On top of the price pressures driven by the war, President Trump just last week imposed a new round of tariffs that threaten to further drive up prices for everyday essentials, like groceries and household products in the months ahead. For families, any inflation relief reflected in today’s report has already ended.

Groundwork’s Senior Vice President of Policy, Advocacy, and Research Alex Jacquez released the following statement:

“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. Gas is back over $4.00 per gallon while Trump’s new tariffs take effect. To make matters worse, GDP growth has slowed and real disposable income has gone essentially nowhere in a year. Working families were teased with relief, but President Trump’s choice to reverse course has left Americans behind.”

Background

Today’s report captures inflation before the latest surge in prices. 

• PCE prices declined slightly -0.1% in June due to lower gas prices but are still 3.7% higher than where they were last year. Core PCE prices, the Fed’s preferred gauge, rose 0.1% in June and 3.3% over the past year.
• A 9.2% monthly decline in gasoline and other energy prices, fueled by the short-lived ceasefire, helped cool headline inflation in June.
• Gas prices have already increased more than 5.5% in the three weeks since Trump’s ceasefire was dismantled. Those higher fuel prices are likely to push headline inflation back up in the months ahead.
  • The Iran war has already cost the average U.S. household more than $574 in higher gasoline and diesel prices, leaving them with less room in their budgets for other essentials.

A year of inflation has left family incomes flat

• Higher prices are swallowing income gains. Real disposable personal income is up just 0.3% since last June, and has not seen a meaningful annual growth since February, leaving families with little additional purchasing power.
• Households have little room to absorb another price shock. The personal savings rate stood at 2.7% in June, roughly two-thirds of the average monthly savings rate in 2024, before Trump took office, making it the lowest since 2022.
  • Families continue to worry about the cost of putting food on the table. The Conference Board’s Consumer Confidence Survey decreased from 92.2 in June to 90.8 in July, and included an increase in references to food and grocery prices, reflecting the continued pressure higher prices are placing on family budgets.

The economy isn’t as strong as even the modest headline suggests.

• AI investment continued to prop up the economy. Business investment in equipment and intellectual property, the categories that capture the AI and data center buildout, were key drivers of GDP growth.
• Consumer spending continued to lose momentum. Spending on services, the largest component of consumer spending, grew just 1.4% in the first half of 2026, roughly half the 2.4% average in 2025.