The U.S. economy grew at a sluggish 1.5% annual pace from April through June, according to the latest data from the Commerce Department. This deceleration from the 2.1% growth seen in the first three months of 2026 fell short of many economists' expectations. While rising imports acted as a drag on overall output, the report highlighted a notable increase in consumer spending, which rose at a 3.2% clip. This remains a critical driver of the economy, accounting for roughly 70% of all U.S. economic activity.
Simultaneously, the housing market is facing renewed pressure as borrowing costs climb. The average 30-year fixed mortgage rate reached 6.66% this week, marking its highest level in a year. This rise, reported by mortgage buyer Freddie Mac, represents the fourth consecutive week of increases. For prospective homebuyers, these elevated rates are creating a significant barrier to entry, further cooling a housing market that has already struggled with affordability throughout the year.
Business investment remains a bright spot, particularly in the technology sector. Excluding housing, business investment grew at an 8.4% pace, fueled largely by a surge in artificial intelligence spending. While this is a slight dip from the 10.6% growth recorded in the first quarter, it underscores the ongoing corporate commitment to productivity-enhancing technologies despite broader economic uncertainty.
Inflation also remains a central concern for policymakers at the Federal Reserve. While their preferred measure of inflation showed signs of slowing last month, it continues to hover above the central bank's 2% target. The combination of sluggish growth and persistent inflation leaves the economy in a delicate position as the Federal Reserve weighs its next steps regarding interest rate policy.
Looking ahead, the public will be watching for signs of whether consumer spending can maintain its momentum in the face of higher borrowing costs and persistent living expenses. With mortgage rates at their highest point in a year, many potential buyers are expected to remain on the sidelines, potentially keeping home sales subdued for the remainder of the summer.