The U.S. economy showed signs of recovery this spring after a notable slowdown earlier in the year. According to a report released by the Commerce Department, the nation's gross domestic product (GDP) — the broadest measure of economic activity — expanded at an annual rate of 3% during the months of April, May, and June. This marks a significant turnaround from the previous three months when the GDP contracted by 0.5%.
The fluctuations in GDP figures were influenced by considerable changes in international trade as businesses and consumers adjusted to the tariffs imposed by President Trump. Early in the year, imports surged as companies attempted to stockpile foreign goods before these tariffs took effect. This surge had a negative impact on GDP in January, February, and March because imports are subtracted from the overall measure of economic activity.
In contrast, the second quarter saw a decline in imports as the double-digit tariffs began to influence market dynamics, which contributed to a more favorable spring GDP figure. However, it's important to note that exports also decreased during this quarter, indicating that growth remains slower compared to the previous two years.
Consumer spending, which serves as the primary engine of economic activity, increased at an annual rate of 1.4% in the spring months. Despite this increase, both business and residential investments fell during the quarter, while spending by state and local governments saw an uptick. When averaging the GDP measures from the first and second quarters, the U.S. economy grew at an annual rate of approximately 1.25% during the first half of the year. This represents a slowdown compared to each of the prior two years, where the economy enjoyed growth nearing 3%.
Looking ahead, experts predict that the economy may experience a further loss of momentum. Samuel Tombs from Pantheon Macroeconomics projects that annualized GDP growth could drop to only about 1% in the second half of the year. This anticipated decline is attributed to consumers grappling with rising prices for imported goods and businesses facing uncertainty regarding the Trump administration's economic policies.
Furthermore, the real final sales to private domestic purchasers, which exclude trade and government spending, grew at an annual rate of 1.2% in the second quarter, a decrease from 1.9% in the first quarter. This trend suggests that while there was growth in the spring, the overall economic landscape remains challenging.
