BREAKING: US Economy Beats Expectations in Q2 With 3.0% GDP Growth

Hey, remember when Donald Trump’s tariff wars would crater the global economy? Recall when the Protection Racket Media hyperventilated over a massive trade imbalance in Q1 to declare the start of a Trump recession? 

You can bet they won’t recall it, but the rest of us should after today’s advance estimate of economic growth in the second quarter. The US economy grew at a 3.0% annualized rate, easily beating expectations on Wall Street:

The U.S. economy returned to growth in the second quarter after contracting in the first, largely due to trade swings.

The Commerce Department said U.S. gross domestic product—the value of all goods and services produced across the economy—rose at a seasonally and inflation adjusted 3.0% annual rate in the second quarter.

The reading exceeded the 2.3% growth that economists surveyed by The Wall Street Journal expected.

Surprise! Except … not really. The economy actually looked strong in Q1 as well, with strong business investment and decent levels of consumer spending. The reason the report dipped into negative territory was a massive expansion of imports, as business and producers attempted to beat Trump’s anticipated tariffs. The resulting massive trade imbalance knocked five full points off GDP, and even that only barely took the official reading into negative territory. 

What makes this result so good? First off, the front-loading of imports in Q1 resulted in a -30.3% dropoff in imports this quarter, which plus-ups the GDP reading. However, exports declined a small amount too, which takes a bit of the shine off of those figures in the final result. Working against the GDP number this quarter is also business investment, which also front-loaded its demand in Q1 (+23.8) and dropped significantly as a result this quarter (-15.6). 

Essentially, all of these basically rebalanced in Q2. So what made this quarter look so good? Consumer activity rose by a modest 1.4% overall after a slow 0.5% increase in Q1. Final sales of domestic product went up 8.4%, however, and final sales to domestic purchasers rose 3.0%. 

Bear in mind that all of these figures are annualized, and also that they are “real” figures, meaning already adjusted for inflation. So how did inflation look in Q2? Recall that the Protection Racket Media insisted that the tariffs would reignite inflation and hammer consumers, but the Bureau of Economic Analysis reports that price increase rates fell instead:

The Associated Press calls this “surprising”:

America gross domestic product — the nation’s output of goods and services — rebounded after falling at a 0.5% clip from January through March, the Commerce Department reported Wednesday. The first-quarter drop was mainly caused by a surge in imports — which are subtracted from GDP — as businesses scrambled to bring in foreign goods ahead of Trump’s tariffs.

The bounceback was expected but the size of it wasn’t: Economists had forecast 2% growth from April through June.

The AP also estimated that the inventory front-loading in Q1 cost 3.2 points on GDP in Q2. If we add that back in to this quarter and average the result with Q1, we end up with 2.6% growth over the last two quarters. I suspect the actual number would be higher, but it’s still solid growth in spite of the uncertainties of Trump’s trade wars. 

Rick Santelli was pleased, to say the least, reacting as the BEA released the numbers:

Don’t expect the rest of the media to be this happy to be proven wrong on both growth and inflation. Or about anything that looks like success in the Trump II era, either. 

Update: The question now is whether the Fed budges on interest rates. The inflation numbers offer some room for an incremental reduction, but it may be too late for this week’s meeting. Even some Fed governors are getting restless, however:

Fed Chair Jerome Powell and his colleagues have signaled they favor maintaining a wait-and-see approach at this week’s meeting. The potential dissenters—governors Christopher Waller and Michelle Bowman—happen to be President Trump’s two appointees. Both have voiced support for cutting rates, which Trump also has publicly demanded.

Their break with Powell coincides with Trump intensifying his pressure campaign against the Fed chair, from surprise visits to the Fed to public attacks on the chair’s leadership, all while potential successors jockey for position ahead of Powell’s term ending next May.

Perhaps we’ll get more than one surprise this week. Stay tuned. 

Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.

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