The preliminary government data released on Wednesday shows that the inflation-adjusted annualized growth rate of the U.S. Gross Domestic Product (GDP) is 3%, a significant reversal from the 0.5% contraction in the previous quarter. The Bureau of Economic Analysis report pointed out that net exports contributed 5 percentage points to GDP, while in the first quarter, they had recordly dragged down economic growth.
Trump stated: "The second quarter GDP just came out at 3%, far better than expected! 'Mr. Too Late' now has to lower interest rates. There is no inflation! Allowing people to buy houses and refinance for it!"
Tom Porcelli, Chief U.S. Economist at PGIM Fixed Income, said: "If you only look at the overall GDP changes, you cannot truly understand the conditions beneath the economic surface." He noted that quarterly GDP growth is strongly influenced by the highly volatile factors of inventory and trade. At the beginning of the year, companies imported goods in advance, leading to a surge in imports, which in turn dragged down the first quarter GDP.
Since the second quarter, goods imports have cumulatively decreased by 23% since March, completely erasing the "early import effect" from the tariffs in the first quarter, and further lowering the import levels. Meanwhile, exports only decreased by 2.5%, which means that net exports will significantly boost GDP in the second quarter. After excluding tariff-related fluctuations, the actual economic growth in the second quarter is moderate. Consumption expenditures, which account for two-thirds of GDP, only grew by 1.4%, marking the lowest growth rate for consecutive quarters since the pandemic; business investment growth has also noticeably slowed.
As trade and inventory fluctuations distort the annual GDP data, economists are more focused on the domestic private final sales demand indicator—growing only 1.2% in the second quarter, the weakest since the end of 2022.
This Wednesday, three key data points will be released in succession, with the GDP report being the first signal. Although the Federal Reserve is expected to keep interest rates unchanged at today’s meeting, the report reveals contradictions in the potential demand trajectory: signs of easing policy uncertainty, with support from the stock market and consumer confidence. The U.S. government has reached trade agreements with the EU, Japan, and others, but if other negotiating parties fail to reach agreements by the Friday deadline, they will face higher tariffs.
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