United States: Economy rebounds in Q2
GDP reading: GDP rebounded 3.0% in seasonally adjusted annualized rate terms (SAAR) in the second quarter, contrasting the 0.5% contraction recorded in the first quarter and beating market expectations. The rebound was driven by improvements in private and government spending plus a slump in imports. In contrast, an inventory drawdown and stagnant fixed investment acted as a drag.
Drivers: Household spending growth improved to 1.4% SAAR in Q2 from a 0.5% expansion in Q1. Public spending bounced back, growing 0.4% in Q2 (Q1: -0.6% SAAR). Meanwhile, fixed investment growth waned to 0.4% in Q2, following 7.6% growth in the prior quarter. Exports of goods and services deteriorated, contracting 1.8% in Q2 (Q1: +0.4% SAAR). In addition, imports of goods and services plunged 30.3% in Q2 (Q1: +38.0% SAAR).
GDP outlook: Economic growth is forecast to slow in H2 2025 due to fallout from the implementation of “reciprocal” tariffs on multiple trading partners, though the economy is expected to dodge recession.
Panelist insight: On the data and outlook, TD Economics’ Thomas Feltmate said:
“Headline GDP growth for the second quarter overstated the degree of strength in the U.S. economy. An unwinding of Q1’s tariff front-running resulted in imports contracting by the largest amount (outside of the pandemic) since the height of the global financial crisis, resulting in a massive positive contribution to GDP. Once the effects of net trade, inventories and government were removed, sales to private domestic purchasers, expanded by just 1.2% or its slowest rate of growth in 2.5 years. […] With inflationary pressures likely to heat-up over the coming months alongside some expected softening in the labor market, the backdrop for consumer spending is looking increasingly fragile. Our current GDP tracking has the economy expanding by around 1.0% in Q3.”