It was a rough start to 2025 as President Donald Trump’s tariffs created a doom-and-gloom situation in the US economy. However, the turbulence subsided and economic conditions rebounded sharply in the second quarter as US GDP topped economists’ expectations without triggering a bout of “tarifflation.” All eyes are now squarely focused on the third quarter.
Springtime for US GDP
Extra! Extra! The United States is no longer halfway toward a recession.
The Bureau of Economic Analysis released the advanced estimate of the second-quarter gross domestic product, a sum of the value of all goods and services produced in the nation. While economic observers had anticipated a solid reading and an improvement from the first quarter of 2025, the report topped expectations.
During the April-June period, the US GDP growth rate increased to 3%, surpassing the 0.5% contraction recorded in the first quarter of the year. The consensus estimate pointed to a 2.4% expansion. The key contributors to last quarter's better-than-expected results were trade and consumer spending.
First, imports, which are subtracted from GDP calculations, declined by more than 30% after soaring 38% in the first quarter as businesses rushed to purchase their foreign goods. Exports fell 1.8% following a tepid 0.4% increase. Second, real consumer spending surged 1.4%, up from 0.5%. Are shoppers confident about the economy again? While consumer surveys suggest sentiment is complicated, recent figures show that individuals reopened their wallets.
Overall government consumption expenditures and gross investment ticked up 0.4%. However, a noticeable spending gap existed between the three levels of government. Federal outlays decreased by nearly 4%, while state and local spending surged by 3%. This was the second consecutive quarter of contracting federal expenditures.
A concerning development in the GDP report was a double-digit plunge in gross private domestic investment (GPDI). Market watchers closely monitor the GPDI, as it reflects both residential and non-residential investments, ranging from expenditures on machinery and factories to new home construction. The GPDI plunged 15.6%.
Ultimately, most of what was outlined in the second-quarter US GDP report was widely anticipated. But while everyone is focused on America’s growth, the latest data also offered insights into the inflation picture.
Still Waiting for Tarifflation
Where's the inflation? Liberty Nation News' Graham Noble recently wrote: "Just a few months ago, the left-wing legacy media was decidedly Chicken Little on President Donald Trump’s tariff talk. Jobs would be lost, inflation would explode, the markets would tank, businesses would be crushed, and, yes, the sky would probably fall." Today, these prognostications have yet to come to fruition.
The quarterly gross domestic product report also provides updates on inflation. The latest data indicated that price pressures were minimal.
The GDP Price Index, a measure of prices for goods and services produced in the United States, rose 2% in the second quarter. This was down from the 3.8% increase in the previous three months and lower than the consensus forecast of 2.8%. PCE prices, the Federal Reserve's favorite inflation metric, rose by a smaller-than-expected 2.1%, down from the 3.7% spike in the first quarter. Core PCE, which strips out the volatile food and energy categories, advanced 2.5%. While this was higher than economists' projections, it represented a slowdown from the 3.5% growth rate registered in the first three months.
What’s Next?
Will President Trump’s tariffs start negatively impacting the economy in the third quarter? Experts say the administration’s aggressive trade agenda could start influencing the summertime data. Wall Street’s collective attention will be centered on the July jobs report (released on Aug. 1), the July Consumer Price Index (released on Aug. 12), the July Producer Price Index (released on Aug. 14), and the July retail sales (released on Aug. 15).
Early estimates, such as from the Cleveland Fed's Inflation Nowcasting Model, point to inflation stalling. Truflation, a popular private-sector real-time running estimate, suggests inflation is hovering around the 2% mark. As for the broader economy, the New York Fed Staff Nowcast suggests third-quarter US GDP growth will be 2.5%.
While trade levies operate on a lag, the hard data have yet to indicate tariff-driven threats.
