GDP expanded at a 3% annual rate in the second quarter, the Bureau of Economic Analysis said Wednesday in a preliminary reading that shows the economy bounced back after a contraction in the first quarter.
The growth in GDP, adjusted for inflation and seasonal variations, was stronger than economists expected and allays fears about a possible recession. It also gives President Donald Trump more leeway to pursue his agenda.
Wednesday’s report is the first of three revisions to the data in the coming weeks.
The latest report is a big change from the first quarter of this year, when GDP fell 0.5%. That first quarter report set off alarm bells that the economy was going to fall into a recession. The decline, though, was largely driven by a huge surge in imports as businesses rushed to get ahead of Trump’s tariffs. The bounceback in the second quarter reflected a reversal of that trend.
The “tsunami wave of imports receded in the second quarter, lifting economic growth spectacularly and keeping the U.S. well away from the threat of recession,” FWDBONDS chief economist Chris Rupkey wrote in a note on Wednesday’s report.
Still, he noted, other details from the report were not as rosy. Housing construction, for instance, continued to slow. Overall, final sales to private domestic buyers, a measure of the underlying strength of the economy that strips out the effects of government spending and net exports, grew at only a 1.2% rate.
Trump’s aggressive tariff policy dominated his early tenure. The blanket imposition of major tariffs on countries worldwide in April led to a major drop in stock prices and further buttressed fears that an economic downturn was coming.
But the latest numbers show the economy was able to rebound from that slump and is still chugging along.
For instance, the economy again beat expectations in June and added 147,000 jobs, an encouraging sign. The unemployment rate fell slightly to 4.2%, the Bureau of Labor Statistics reported.
But the major question now is the Federal Reserve. The Fed has, much to the chagrin of Trump and his allies, kept interest rates high and has not trimmed them since the start of this year.
Inflation is still above the Fed’s 2% level, but Trump officials have been pushing for the Fed to lower its interest rate target, arguing that doing so would help consumers and be even better for economic growth.
SHAKY TRUMP-POWELL TRUCE COULD BREAK NEXT WEEK WITH FED RATE DECISION
This Wednesday’s preliminary GDP report for the second quarter comes on the same day the Fed will release its interest rate decision. The overwhelming consensus is the Fed will once again hold rates steady despite the political pressure to cut. It is unclear how much these latest numbers will factor into the Fed’s decision-making.
If the Fed once again holds rates steady, it could reignite calls from Trump’s allies for Fed Chairman Jerome Powell to step aside or be fired, a move that is legally dubious and would cause upheaval in the markets.
