There are some goofy aspects to the gross domestic product calculation which can make it hard to understand, in particular the treatment of imports and exports. Those have been heavily impacted recently by the tariff chaos, which led to heavy importing at the start of the year to front-run higher tariffs, followed by a drop in imports as there is a limit to how much inventory any company can hold. First quarter 2025 GDP was negative, but all due to very high imports, which are subtracted, since they are not domestically produced. The first estimate for the second quarter was released today and was expected to be higher because an anticipated drop in imports would create a positive reversal of the first quarter trend.
The initial estimate for 2Q was 3.0%, above most expectations. Imports did indeed drop, as did exports, but not as much. Personal consumption, which is the largest component of our economy, grew strongly. Investment was down somewhat, but artificial intelligence data center spending is volatile and affecting this number quarter to quarter. The various price increase or decrease metrics included in the report to determine the effect of inflation on the calculation, were generally lower, which is somewhat positive. I would call this a moderately okay report, indicating that the consumer appears to be spending, business investment is stable and inflation is not rising rapidly. Once we are past all the tariff chaos we will get a much clearer picture of how the US economy is doing and is going to do under the Trump policies and the recent spending and tax bill. (BEA Release)
