Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Bio
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
Bio
X •  LinkedIn
 
  Real GDP Grew at a 3.0% Annual Rate in Q2
Posted Under: Data Watch • Employment • GDP • Government • Inflation • Markets • Trade • Fed Reserve • Interest Rates • Bonds • Stocks
Supporting Image for Blog Post

 

Implications:  Real GDP growth rebounded sharply from the decline in the first quarter, growing at a 3.0% rate in Q2.  However, this is not a signal of a new era of prosperity or that the underlying trend is now 3.0%.  Instead, it’s largely a reflection of how businesses reacted to the introduction of tariffs this year.  President Trump promised early this year to raise tariffs.  In response, businesses were front-running tariffs in Q1, rapidly filling orders from their foreign suppliers and putting some orders from US producers on the backburner.  As a result, we got lower real GDP in Q1.  But once higher tariffs arrived, businesses slowed orders from abroad and shifted some back to US producers, resulting in a rebound in real GDP.  Putting these two quarters together, real GDP is up at a modest 1.2% annual rate in the first half of the year, below the 2.0% average of the past twenty years.  In terms of the details for the second quarter, net exports added 5.0 percentage points to the growth rate in Q2, the largest contribution for any quarter since at least the 1940s (after Q1 was a record drag).  Meanwhile, with fewer imports, inventories were a 3.2 point drag on growth in Q2.  The good news is that inventories are very likely to help support growth in the third quarter.  We like to follow what we call “Core” Real GDP, which is consumer spending, business fixed investment, and home building, and excludes the most volatile categories like government purchases, inventories, and international trade.  Core GDP grew at a modest 1.2% annual rate in Q2, a 1.6% annual rate in the first half of the year, but is up a respectable 2.4% from a year ago.  Perhaps the best news is more evidence that the Federal Reserve has room to modestly cut rates.  Nominal GDP (real GDP plus inflation) is up 4.5% from a year ago, compared to 5.7% in the year ending in the second quarter of 2024.  The drop in the growth rate of nominal GDP signals that monetary policy has been tight and the 4.5% trend is already very close to the Fed’s target for short-term rates.  Note that GDP prices rose at a 2.0% rate in Q2, right at the Fed’s inflation target.  If the Fed doesn’t cut rates, we are headed for inflation below the 2.0% target.  In other news this morning, ADP reported private payrolls up 104,000 in July, consistent with our forecast for an increase in nonfarm payrolls of 132,000 to be reported on Friday.  On the housing front, home prices declined slightly in May, the second consecutive drop.  The national Case-Shiller index fell 0.3% for the month while the FHFA index declined 0.2%.  However, both indexes remain higher than a year ago, the Case-Shiller by 2.3% and the FHFA by 2.8%.  We expect very modest price gains in the year ahead.

Click here for a PDF version

Posted on Wednesday, July 30, 2025 @ 12:14 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
 PREVIOUS POSTS
Q2 Rebound is No Big Deal
New Orders for Durable Goods Declined 9.3% in June
Three on Thursday - Stablecoins 101
New Single-Family Home Sales Increased 0.6% in June
Existing Home Sales Declined 2.7% in June
Fed Independence is a Myth
Housing Starts Rose 4.6% in June
Three on Thursday - Has the Housing Market Collapse Arrived?
Retail Sales Rose 0.6% in June
The Producer Price Index (PPI) Was Unchanged in June
Archive
Skip Navigation Links.
Expand 20252025
Expand 20242024
Expand 20232023
Expand 20222022
Expand 20212021
Expand 20202020
Expand 20192019
Expand 20182018
Expand 20172017
Expand 20162016
Expand 20152015
Expand 20142014
Expand 20132013
Expand 20122012
Expand 20112011
Expand 20102010

Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2025 All rights reserved.