The U.S. economy experienced a notable rebound in the second quarter, with Gross Domestic Product (GDP) rising by 3%, significantly outperforming the 2.3% estimate. This marks a turnaround from a 0.5% decline in the previous quarter, showcasing renewed strength in consumer spending and trade balance.
Consumer spending, which is a key driver of economic activity, increased by 1.4% during this period, up from just 0.5% in the first quarter. However, the import and export landscape was mixed; exports fell by 1.8%, while imports saw a dramatic decline of 30.3%, reversing a substantial 37.9% surge in Q1.
In light of these economic developments, President Donald Trump has reiterated his call for the Federal Reserve to lower interest rates. This appeal comes after the Commerce Department revealed the GDP figures on Wednesday, highlighting an unexpectedly strong growth trajectory for the U.S. economy from April to June.
Seasonally adjusted and factoring in inflation, the 3% growth rate was a welcome surprise, exceeding the Dow Jones forecast. The first quarter’s contraction was primarily attributed to a sharp decrease in imports and reduced consumer spending amidst tariff concerns.
Despite the positive growth in GDP, financial markets reacted with little volatility, as stock index futures displayed mixed results and Treasury yields increased. Heather Long, chief economist at Navy Federal Credit Union, summed up the economic sentiment by stating, “The word of the summer for the economy is ‘resilient.’ The consumer is hanging in there, but still on edge until the trade deals are done.”
The reported period coincided with President Trump’s April 2 announcement regarding tariffs, referred to as “liberation day.” The preliminary surge in imports during the first quarter was driven by businesses looking to stock up ahead of anticipated tariff hikes. This backdrop of ongoing negotiations with U.S. trading partners has seen an escalation in tariffs, although they remain below the original proposals put forth earlier in the year.
Kevin Hassett, director of the National Economic Council, commented on the GDP report, emphasizing its positive signals amid the fears of a recession attributed to tariffs. “In fact, every single thing about this GDP release has shown strength,” he noted during an appearance on CNBC.
The data also reveals a general uptick across various sectors of the economy, combined with signs that inflation is easing, although it has not completely dissipated. For instance, the personal consumption expenditures price index, which the Federal Reserve closely monitors, showed a gain of 2.1% for the quarter—slightly above the Fed’s target. Core PCE inflation, which excludes fluctuating food and energy prices, rose to 2.5%, compared to 3.7% and 3.5% in the previous quarter, respectively.
The Federal Reserve is scheduled to meet later on Wednesday and is anticipated to maintain its key overnight borrowing rate within the current range of 4.25% to 4.5%, a position it has held since December.
In response to the GDP figures, President Trump shared his enthusiasm on Truth Social, stating, “2Q GDP JUST OUT: 3%, WAY BETTER THAN EXPECTED!” He added, using his nickname for Fed Chair Jerome Powell, that it’s “‘Too Late’ MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!”
While the overall growth appears promising, there are indicators of potential slowdown within the GDP report. Final sales to private domestic purchasers, a critical metric for evaluating demand, increased only 1.2% in the second quarter, down from a 1.9% rise in Q1, marking the slowest growth since the fourth quarter of 2022. The contraction in exports is projected to have a significant impact on the growth rate in the upcoming third quarter as well.
Moreover, rising mortgage rates have been a concern for Trump, significantly affecting the housing market, as indicated by a 4.6% drop in residential investment in Q2. Conversely, it is noteworthy that the GDP growth occurred without an uptick in government spending; federal outlays fell by 3.7% following a 4.6% decline in the previous quarter, although state and local government spending increased by 3%.
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