V-shaped rebound from -0.5% in Q1
Companies reduce inventory accumulation... Consumer spending also improves
Some indicators, such as final sales to private domestic purchasers, show signs of slowdown
Trump urges, "Rates must be lowered right now" after GDP announcement
The U.S. economy rebounded in the second quarter of this year, recording a growth rate of 3%, which exceeded expectations. The main factors were a sharp decline in corporate imports and a recovery in consumer sentiment. Despite aggressive tariff policies, the economy escaped negative growth in the first quarter and grew at a faster-than-expected pace.
According to the U.S. Department of Commerce on July 30 (local time), the advance estimate of real Gross Domestic Product (GDP) for the second quarter showed an annualized growth of 3.0% compared to the previous quarter. This is a significant improvement from the 0.5% contraction in the first quarter and surpassed the market forecast of 2.3% compiled by Dow Jones. It also far exceeded the U.S. potential growth rate, which is estimated to be in the upper 1% range.
The United States releases GDP growth rates in three stages, and this announcement is the first stage, known as the advance estimate. The preliminary and final estimates will be released sequentially afterward.
The main drivers behind the recovery of U.S. economic growth in the second quarter were the decline in imports and the improvement in consumer sentiment.
In particular, the decrease in imports had a significant impact on the rise in the growth rate. While exports fell by 1.8% in the second quarter, imports plummeted by 30.3%. As a result, the trade balance improved, and the contribution of net exports to GDP reached 5 percentage points, boosting the growth rate.
The situation was different in the first quarter. At that time, U.S. companies rushed to secure inventories ahead of the implementation of tariffs, which led to a 37.9% surge in imports and a widening trade deficit. However, in early April, the United States imposed a 10% base tariff worldwide, which reduced the need for companies to accumulate inventories. Combined with the base effect from the first quarter, imports sharply decreased and the trade balance improved in the second quarter.
The consumer sector also showed signs of recovery. Real consumer spending, which accounts for about two-thirds of U.S. GDP, increased by 1.4%, a significant rise compared to the first quarter (0.5%).
The pace of inflation somewhat slowed. The core Personal Consumption Expenditures (PCE) price index, which the Federal Reserve (Fed) monitors most closely, rose by 2.5%, a smaller increase compared to the first quarter of this year (3.5%). This matched the market forecast of 2.5%. The core PCE price index excludes food and energy and is used to gauge the underlying trend in prices.
This robust second-quarter growth is noteworthy because it persisted despite President Trump's tariff policies. After announcing reciprocal tariffs in early April, President Trump reached trade agreements with major countries such as Japan and the European Union (EU), and also entered a "tariff truce" with China, thereby avoiding a full-scale trade conflict. As a result, contrary to initial market concerns, the economic impact of the tariff policy has so far remained limited.
However, there were also some signs of an economic slowdown. Final sales to private domestic purchasers, a key demand indicator watched by the Fed, rose by only 1.2%. This is much lower than the 1.9% growth rate in the first quarter and is the lowest since the fourth quarter of 2022.
Eliza Winger, an economist at Bloomberg Economics, analyzed, "This indicator masks the slowdown in factors that more clearly show demand trends," and added, "The slowdown in final sales to private domestic purchasers is a sign that economic activity is already weakening, even though tariff costs have not yet been fully passed on to consumers."
Meanwhile, as soon as the second-quarter GDP growth rate was announced, President Trump immediately urged the Federal Reserve (Fed) to cut interest rates.
In a post on his social networking service (SNS) Truth Social, he wrote, "Second-quarter GDP just came out," and added, "3% is much better than expected." He then referred to Fed Chair Jerome Powell as "Too Late" and pressed, "Too Late must lower rates right now," adding, "There is no inflation. Let people buy homes and refinance."
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