U.S. Economic Growth Likely Rebounded in Q2 — But All Is Not Well Underneath

The U.S. economy likely bounced back in the second quarter of 2025, driven largely by trade dynamics and a shrinking import gap. But economists warn that the headline GDP number may overstate the true strength of the economy, as underlying consumer and business activity remains weak.

Key Highlights:

GDP Rebound — But Don’t Be Fooled

• GDP likely grew at a 2.4% annualized rate in Q2 after a 0.5% contraction in Q1.
  
• Boost mainly due to shrinking trade deficit and modest inventory build-up.
  
• Underlying demand remains soft, with real growth likely closer to 1.5%.
  

Headline Numbers Distorted

• Trade contributed heavily to growth, but economists say it’s too volatile to reflect true momentum.
  
• Economists recommend watching “final sales to private domestic purchasers”, which exclude trade, inventories, and government spending — a more accurate growth gauge.
  

Trump’s Tariff Strategy Still Hurting

• Ongoing tariffs and trade uncertainty continue to create caution in the corporate sector.
  
• Despite new trade deals, 60% of imports remain uncovered.
  
• U.S. tariff rate now highest since the 1930s.
  

Consumer & Business Spending Tepid

• Consumer spending rebounded moderately, after nearly stalling in Q1.
  
• Business investment in equipment remained flat or declined.
  
• Government spending rebounded, but will likely be muted going forward.
  

Economic Outlook: Sluggish Second Half

• Economists predict 1.5% or lower growth for the full year, well below 2024’s 2.8%.
  
• Major headwinds include:
  
  • Slowing consumer demand
    
  • Weak equipment investment
    
  • Political and policy uncertainty
    

Fed Unlikely to Cut Rates Yet

• The Fed expected to hold rates at 4.25%-4.50% during this week’s meeting.
  
• Despite pressure from Trump, economists see no urgency for rate cuts unless layoffs rise.
  
• Next possible rate cut: December 2025
  

Debt, Immigration & Productivity Concerns

• “One Big Beautiful Bill” adds $3.4 trillion to national debt over 10 years, with minimal GDP impact.
  
• Immigration crackdown may further hurt labor supply and productivity.
  
• AI could help productivity, but not enough to offset slowing labor force growth.
  

Final Thought:
While Q2 numbers may paint a rosier picture, beneath the surface, the economy is navigating policy-driven distortions, tepid private demand, and long-term structural risks. The U.S. economy may be growing on paper — but not necessarily in strength.