The US economy is estimated to have returned to growth in the second quarter, with a recovery in the export and import balance. However, limited increases in consumer spending and stagnant business investment suggest the outlook is not as strong as expected.
The preliminary GDP data to be released by the Commerce Department on Wednesday is expected to contain deviations from trade data, just as it did in the first quarter of the year.
At that time, the economy contracted for the first time in three years.Economists emphasize that because of this misleading picture, attention should be focused on the “final sales to private domestic purchasers” data. This item reflects the growth trend after removing the effects of government spending, inventories, and foreign trade.
According to a Reuters poll of economists, the US economy may have recorded an annualized growth rate of 2.4% in the second quarter of the year. However, data released on Tuesday showed a narrowing trade deficit and an increase in inventories, raising growth forecasts to 3.3%.
Nevertheless, according to economists, growth in the first half of the year may have remained below 1.5%.
Compared to the 2.8% growth rate in 2024, this is a serious slowdown. The expectation is that the weak performance will continue in the second half of the year.Trade Policy Creates Uncertainty
The protectionist trade policies and high tariffs implemented during the Donald Trump era still create uncertainty in the economy.
The effective tariff rate in the US is near its highest levels since the 1930s.The fact that 60% of imports are still not covered by trade agreements puts pressure on consumer spending and limits real income growth.
Employment and Interest Rate Policy Will Be Decisive
Economists say that as long as the employment market remains strong, the US Federal Reserve (Fed) will not feel the need for an immediate interest rate cut this year. The Fed is expected to keep interest rates unchanged this week and make its next cut in December. Consumer spending is estimated to have recovered somewhat in the second quarter. However, business equipment investments remained low. A limited increase in government spending is also expected.
Debt and Productivity Concerns
The newly introduced “One Big Beautiful Bill” budget package is estimated to add $3.4 trillion to the country’s debt and contribute only an average of 0.5% annually to growth over the next 10 years.
On the other hand, tightening immigration policies could limit growth by reducing the labor supply. Professor from Loyola Marymount University…
Sung Won Sohn said, “If productivity doesn’t increase with artificial intelligence and similar technologies, growth will slow significantly due to a shrinking workforce.”
