U.S. economic growth slowed during the second quarter, though underlying private-sector demand strengthened considerably.

Real gross domestic product increased at a seasonally adjusted annual rate of 1.5% during April-June, according to the advance estimate released July 30 by the U.S. Bureau of Economic Analysis. That was down from 2.1% growth in 1Q and below economists’ consensus forecast of approximately 2.0%.

BEA said the increase reflected gains in consumer spending, business investment and exports that were partly offset by lower government spending. Imports — which are subtracted when calculating GDP — increased and represented another drag on the headline result.

The deceleration from 1Q reflected downturns in government spending and slower growth in investment and exports. Those factors were partly offset by an acceleration in consumer spending, while imports increased faster than during the previous quarter.

Consumer spending increased across both goods and services. Goods growth was led by prescription drugs, new light trucks, furniture and other household equipment. Within services, food services and accommodations and financial services and insurance were leading contributors.

Investment gains primarily reflected increases in equipment and intellectual property products. Equipment spending was broad-based, led by industrial, transportation and information-processing equipment, while intellectual property investment increased on higher software and research-and-development spending.

Those gains were partly offset by decreases in private inventory investment and nonresidential structures. Wholesale trade was the largest contributor to the inventory decline, while the decrease in nonresidential structures was led by manufacturing construction.

A key measure of underlying demand painted a stronger picture than the headline GDP figure. Real final sales to private domestic purchasers — which combines consumer spending and gross private fixed investment — increased 3.9%, accelerating sharply from 1.7% in 1Q.

Inflation measures remained elevated. The gross domestic purchases price index increased 5.7%, up from 3.6% in 1Q. The personal consumption expenditures price index rose 5.1%, compared with 4.6% previously. Core PCE, which excludes food and energy, eased to 3.4% from 4.4%.

MDM Analysis

The 1.5% headline growth rate looks sluggish, but distributors should not read it as evidence of an equivalent deterioration in customer demand. Faster imports, reduced inventory investment and lower government spending restrained GDP, while real final sales to private domestic purchasers accelerated to a robust 3.9%.

The business-investment mix was also constructive for industrial distributors, with gains in industrial, transportation and information-processing equipment. However, wholesale inventories declined and manufacturing structures remained weak, suggesting businesses are still managing inventories and capital projects selectively.

The largest caution flag is pricing. The gross domestic purchases price index jumped 5.7% and headline PCE inflation accelerated, reinforcing the need for pricing discipline and close monitoring of supplier costs. Overall, the report points to stronger domestic private demand than the topline suggests, but with continued inflation and uneven conditions across distributor-facing markets.

Real GDP and Related Measures

BEA is scheduled to release its second 2Q GDP estimate Aug. 26.