US June PCE unexpectedly turns negative for the first time since 2020, while GDP growth slows in the second quarter but domestic demand hits a two-year high

BlockBeats News, July 30th. Today's released U.S. June PCE Price Index saw a 0.1% decrease month-over-month, marking the first monthly negative value since the outbreak of the pandemic in 2020. The year-over-year inflation rate slowed from May's three-year high of 4.1% to 3.7%; the core PCE only rose by 0.1% month-over-month, decreasing from 3.4% to 3.3% year-over-year, but still remained above the Fed's 2% target for the sixth consecutive year. The cooling inflation was mainly attributed to the fall in oil prices after the U.S.-Iran temporary truce. Consumer performance was strong: inflation-adjusted consumer spending in June rose by 0.4% month-over-month, matching the highest growth rate since July 2025. Although the second-quarter GDP annualized growth rate slowed from 2.1% in the first quarter to 1.5%, the indicator of domestic private final sales excluding net exports, inventories, and government spending grew by 3.9%, more than doubling from the first quarter, reaching the highest level since early 2023, with consumer spending, which accounts for about two-thirds of the economy, jumping from 0.5% to 3.2%.

Low unemployment, tax cuts, and the AI investment boom have collectively supported household consumption and business capital spending. However, energy prices remain a core risk for the second half of the year—average gasoline prices in the second quarter reached $4.22 per gallon, far above the pre-conflict level of less than $3, and oil prices rose again this month. Consumer goods companies like P&G have observed consumers becoming more price-sensitive. The day before the GDP report was released, the Fed voted 9 to 3 to keep the interest rate unchanged at 3.5% to 3.75%, with three regional Fed presidents dissenting and advocating for a 25-basis-point hike. Powell stated that the "economy is showing remarkable resilience." The growing camp supporting a rate hike highlights the deepening internal divisions.