U.S. economy slowed in second quarter as Iran war weighs on growth

The nation’s gross domestic product grew at an annual rate of 1.5% in the second quarter, the Commerce Department said Thursday, weaker than economists expected and a sign the Iran war is hurting growth.

Economists polled by Reuters predicted GDP would rise at an annualized rate of 2.1% for April to June. GDP measures the total value of goods and services produced in the U.S. The economy grew at a 2.1% rate in the first quarter.

The reading shows an economy grappling with the impact of the conflict in the Middle East, which has disrupted shipping in the Strait of Hormuz and driven up global energy costs. In the second quarter, a surge in oil prices lifted U.S. gasoline prices from an average of $2.98 a gallon just before the war started in late February to well over $4.

“With gas prices rising again, the squeeze on real incomes will put renewed pressure on consumer spending in the second half of the year,” Oxford Economics said in a report.

Despite those pressures, U.S. consumers continue to spend at a healthy clip in the second quarter, the Bureau of Economic Analysis said in its latest snapshot. 

Households are largely weathering the shock of higher gas prices, Thomas Ryan, senior North America economist at Capital Economics. “Even so, it remains unclear whether they can absorb another hit now that retail gasoline prices have risen back above $4 a gallon,” he said in a note to investors. 

Along with healthy consumer spending, booming investment in artificial intelligence is also keeping the economy moving forward, according to Oxford Economics.

— This is a developing story and will be updated