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Economic growth

Economic Growth Softens Amid Tariffs and Uncertainty

Strategic Insights

— 2 min read

Despite a rebound in gross domestic product, consumer spending remained weak, and economic growth softened in the first half of the year. The Commerce Department reported that GDP increased at a 3 percent annual rate in the second quarter, but this came after a 0.5 percent contraction in the first three months of the year. The data was skewed by large swings in trade and inventories caused by President Trump's shifting tariff policies. Economists are divided on the impact of tariffs, with some predicting a further deterioration in the months ahead and others expecting the economy to defy gloomy predictions.

Key Takeaways:

  • The GDP rebound in the second quarter was largely due to an acceleration in consumer spending, which grew at a 1.4 percent annual rate, but this was still below the 2.8 percent growth in spending in 2024.
  • The tax-and-spending bill passed by Congress could provide a short-term boost to economic activity, but many budget experts warn that it could add trillions to the federal debt and pose a long-term risk.
  • Economists are divided on the impact of tariffs, with some expecting a further deterioration in the months ahead and others predicting that the economy will continue to defy gloomy predictions.
  • Consumer prices rose at a 2.1 percent rate in the second quarter, barely above the Fed's long-term target of 2 percent, suggesting that inflation remains tame.
  • Spending data for June will be released on Thursday and could provide a clearer picture of how consumers are responding to the mixed economic signals.
  • The Federal Reserve will consider the economic data at their meeting on Wednesday and are widely expected to hold interest rates steady, but a flood of economic data could help decide whether and when they will cut rates again.

Statistics:

  • GDP increased at a 3 percent annual rate in the second quarter, surpassing forecasters' expectations of a 2.5 percent rate.
  • Consumer spending grew at a 1.4 percent annual rate in the second quarter, an acceleration from the 0.5 percent rate in the first quarter.
  • GDP contracted at a 0.5 percent rate in the first three months of the year, largely due to a surge in imports caused by President Trump's tariff policies.
  • Consumer prices rose at a 2.1 percent rate in the second quarter, barely above the Fed's long-term target of 2 percent.
  • The tax-and-spending bill passed by Congress could add trillions to the federal debt and pose a long-term risk to the economy.

Sources:

  • "GDP Rises 3 Percent, Taking Some Economists Off Guard" by Michael S. Scherer (The New York Times, July 24, 2024)
  • "Tariffs and Trade Data Show a Mixed Picture of the Economy" by Diana B. Henriques (The New York Times, July 24, 2024)
  • "Economists Expect a Further Deterioration in the Months Ahead" by Aditya Bhave (Bank of America, July 2024)
  • "Measures of Underlying Activity Show Growth Slowing Sharply in the First Quarter" by Kathy Bostjancic (Nationwide, July 2024)
  • "Revised Data May Show a More Accurate Picture of the Economy" by Louise Sheiner (Brookings Institution, July 2024)

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