The second quarter’s recovery was more than anticipated, but the data overstates the country’s overall health because domestic demand increased at a slower pace than expected and imports fell for the majority of the improvement.
According to Commerce Department data released on Wednesday, the US economy increased by 3 percent at an annualized rate in the second quarter, beating expectations from economists.
After almost stopping in the first quarter, the US President Donald Trump’s tariffs caused uncertainty, but the consumer spending growth increased moderately by 1.4 percent across both goods and services.
Imports dramatically decreased following the rush to stockpile in the first quarter in an effort to avoid tariffs, which contributed 5% to growth.
Press secretary Karoline Leavitt praised the report, saying that “President Trump has delivered on his promise to make America wealthy again. He has reduced America’s reliance on foreign products, boosted investment in the US, and created thousands of jobs.” There are no more valid reasons for Powell to cut the rates until the data is clear.
Trump has been pressing the US Federal Reserve to cut interest rates for months, but Jerome Powell has repeatedly said the Fed will wait to see how the economy develops as a result before deciding to cut its key interest rate.
Policy-initiated slowdown
Despite claims that US investment has increased, the data indicates otherwise as private sector investment decreased by 15.6% in the second quarter.
The GDP release from today only adds to the policy-initiated slowdown that is already underway. In a statement released to Al Jazeera, Skanda Amarnath, executive director of Employ America and former Federal Reserve economist, said that the top-line number appears superficially better but only as a result of some backlash from the tariff-driven irks to trade and inventories, which temporarily impacted output in Q1.
This is in addition to a 3.2% decrease in non-durable goods manufacturing, which increased at a slower pace of 1.3 percent, compared to 2.3 percent in the previous quarter.
“This second quarter estimate reflects the chaotic trade environment caused by this administration, which saw a decrease in imports and nondurable goods.” According to Gbenga Ajilore, chief economist at the Center on Budget and Policy Priorities, there has also been a decline in exports, particularly for cars, engines, and parts, as a result of the current tariffs on steel, aluminum, and cars.
Job growth also slowed, contrary to what the White House claims. The US Labor Department’s employment report from last month revealed that some industries, including wholesale trade, are impacted by tariffs. Friday is the day before the Labor Department’s July report is scheduled to be released. ADP’s private sector payroll report, which was released on Wednesday, showed 104, 000 new jobs added in the previous month and revised numbers from the previous month, which represents a 23 000 job decline.
Final sales to private domestic customers, also known as business and consumers, increased by 1.2 percent for the quarter, a slowdown from the 1.9 percent seen in the first quarter of the year, according to the gross domestic product (GDP) report.
In a statement released to Al Jazeera, Daniel Hornung, senior fellow at MIT and former deputy director of the National Economic Council, it is clear that tariffs and uncertainty were slowing the economy even during the first half of the year.
Source: Aljazeera
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