U.S. Economy Grew in Second Quarter as Tariffs Scrambled Data

New York Times

30-07-2025

Economic growth softened in the first half of the year, as tariffs and uncertainty upended business plans and scrambled consumers' spending decisions.
The disruptions extended to the economic data itself. Gross domestic product, adjusted for inflation, increased at a 3 percent annual rate in the second quarter, the Commerce Department said on Wednesday. On the surface, that appeared to represent a strong rebound from the first three months of the year, when output contracted at a 0.5 percent rate.
But both those figures were skewed — in opposite directions — by big swings in trade and inventories caused by President Trump's ever-shifting tariff policies. Taken as a whole, the data from the first six months of the year tell a more consistent story of anemic, though positive, economic growth.
Many forecasters expect a further deterioration in the months ahead, as tariffs work their way through supply chains, federal job cuts filter through the economy and stricter immigration policies take a toll on industries that rely on foreign-born workers.
'We don't think we've seen the full effects from tariffs yet,' said Michael Gapen, chief U.S. economist for Morgan Stanley. 'I don't see how we power through without a soft patch at least for a little while.'
But the economy has repeatedly defied such gloomy predictions in recent years, and some forecasters believe it could do so again. Unemployment remains low, measures of consumer confidence have rebounded, and tariffs have so far done little to push up prices overall. The tax-and-spending bill passed by Congress this month could also provide a short-term boost to economic activity, although many budget experts have warned that it could pose a long-term risk by adding trillions to the federal debt.
'We're going to look back and either say, 'Wow, the economy was super resilient and these things didn't matter as much as we thought they would,' or we're going to say, 'Yeah, you could kind of feel it was weakening,'' said Louise Sheiner, an economist at the Brookings Institution. 'I think we just don't know.'
Officials at the Federal Reserve will be weighing those dueling narratives at their meeting on Wednesday. They are widely expected to hold interest rates steady, but a flood of economic data this week could help decide whether and when they will cut rates again.
The data released on Wednesday showed that consumer spending grew at a 1.4 percent annual rate in the second quarter. That was a modest acceleration from the 0.5 percent rate in the beginning of the year, but was well below the 2.8 percent growth in spending in 2024.
The second-quarter figures are preliminary and will be revised at least twice in coming months as more complete data becomes available. Those revisions can be significant: Many economists initially dismissed the contraction in G.D.P. in the first quarter because consumer spending was solid and measures of underlying growth were strong. But subsequent updates made the first quarter look significantly weaker than the preliminary data had suggested.