The nation's gross domestic product expanded at a 1.5 percent annual pace in the second quarter, the Commerce Department reported Thursday. That pace fell short of forecasts and highlighted how the Iran war is curbing expansion.

Analysts surveyed by Reuters had projected GDP would advance at a 2.1 percent annualized rate for the April-June period. GDP tracks the overall value of goods and services made in the United States. Growth had reached a 2.1 percent annual rate in the first quarter.

The figures point to an economy facing fallout from the Middle East conflict, which has interrupted shipping through the Strait of Hormuz and pushed global energy prices higher. Oil costs jumped in the second quarter, lifting average U.S. gasoline prices from $2.98 a gallon before the war began in late February to more than $4.

Oxford Economics noted in a report that rising gas prices will squeeze real incomes and add pressure on consumer spending through the second half of the year.

Even with those strains, American households kept spending at a solid rate in the second quarter, the Bureau of Economic Analysis indicated in its newest report.

Households are mostly handling the higher gas prices, said Thomas Ryan, senior North America economist at Capital Economics. Still, he added in a note that it is uncertain if they can manage another increase now that retail gasoline has climbed back above $4 a gallon.

Strong consumer outlays and heavy investment in artificial intelligence are also supporting growth, Oxford Economics observed.

Consumers gained from a steady job market, tax refunds and cuts, wealth gains from stocks, and they offset any energy-price gap by trimming savings, Nationwide Chief Economist Kathy Bostjancic wrote in a report.

Inflation Eased in June

Other data released Thursday showed the Personal Consumption Expenditures index rose 3.7 percent annually in June, matching forecasts. The result marked a slowdown from May and offered positive news for the Federal Reserve in its inflation fight.

PCE tracks price shifts for consumer goods and services over time. Core PCE, which leaves out volatile food and energy items, increased 3.3 percent last month.

Analysts said the milder inflation data should discourage the Fed from raising its benchmark rate soon.

The softer-than-forecast GDP reading could signal the economy is cooling too fast, Chris Zaccarelli, chief investment officer at Northlight Asset Management, wrote in an email. At the same time, the lower PCE numbers may allow the Fed to stay patient and avoid early rate hikes.

The Fed announced Wednesday it would keep its main interest rate unchanged. Three of the 12 Federal Open Market Committee members voted to raise rates, however, showing division inside the central bank on managing inflation that stays above the 2 percent goal.

Fed Chairman Kevin Warsh said at a Wednesday press conference that reaching the 2 percent target could require more time.

He told reporters that more than five years of above-target inflation cannot be fixed in nine weeks or with one month of small price drops.

Oxford Economics expects core inflation to stay high and finish the year at 3.1 percent annually. Core inflation will not decline on a sustained basis until next year, the firm added.