Consumer spending slashed slightly after a near-first quarter suspension, but private sector investments plummeted in the second quarter.
Although US economic growth jumped more than expected in the second quarter, data is acutely exaggerating the health of the economy as lower imports accounted for the majority of the improvements and domestic demand rose at its slowest pace in two and a half years.
The US economy rose 3% annually in the second quarter, according to the commerce sector. Data was released on Wednesday, beating economists’ expectations after a 0.5% contraction in the first quarter of the year.
After nearly the brakes on the first quarter as President Donald Trump’s tariffs created uncertainty, consumer spending rose 1.4% in both goods and services.
Imports fell sharply – to beat tariffs after rushing stockpiling in the first quarter – added 5% to growth.
The White House touted the report, and in a statement, Press Director Caroline Leavitt said, “President Trump has reduced America’s dependence on foreign products, increased investment in the United States, creating thousands of jobs. He will build a promise to make America rich.
US Federal Reserve Chair Jerome Powell is under pressure from Trump, who cut interest rates for months, but the Fed has repeatedly said it will wait to see how the economy evolves under tariff pressure before deciding whether to cut key rates.
“Policy-initiated slowdown”
Despite claims that investment in the US is being boosted, data says that private sector investments plummeted 15.6% in the second quarter, otherwise data says.
“Today’s GDP release further confirms we are in the midst of a slowdown initiated by policy. The topline count looks good on the surface, but only because of the tariff-driven habit, we have temporarily weighed in the output in Q1 and some snapback to stock and stock.”
This is in parallel with a 3.2% decline in inventory and a slowdown in non-durable goods manufacturing, which fell at a pace of 1.3% from 2.3% in the last quarter.
“This second quarter estimate reflects the administration’s chaotic trade environment: a decline in imports due to an unbearable decline in goods. It also reflects the decline in exports led by cars, engines and parts, as well as existing tariffs on steel, aluminum and automobiles.”
Contrary to the White House’s claims, employment growth has also slowed down. Last month’s U.S. Labor Sector Employment Report showed limited traction in sectors affected by tariffs, including wholesale transactions. The Labor Bureau’s July report is scheduled to be released on Friday. The ADP Private Sector Salary Report, released Wednesday, showed that 104,000 jobs were added last month, and the figures were revised to a decline in employment of 23,000 from the previous month.
The Gross Domestic Product (GDP) report showed that final sales to private domestic buyers, also known as business and consumers, showed an increase of 1.2% for the quarter, marking a slowdown from 1.9% for the first quarter of the year.
“This morning’s report reveals that tariffs and uncertainty are slowing the economy even in the first half of the year,” said Daniel Hornn, a senior fellow at MIT and former deputy director of the National Economic Council, in a statement provided to Al Jazeera.
The US market remained relatively flat in its GDP report as investors awaited Federal Reserve policy decisions on interest rates.
