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The U.S. economy increased with a gross domestic product (GDP) of 3% in Q2, according to the U.S. Bureau of Economic Analysis. This is a reversal from a GDP decrease of 0.5% in Q1.
“Today’s GDP reading was stronger than expected, but much like the first quarter data—which showed a modest decline in economic activity—the details really matter,” says Danielle Hale, Realtor.com® chief economist. “Put simply, the first quarter wasn’t as bad as the headline figure implied, and this quarter isn’t quite as strong as implied in the data.”
The gross domestic product measures the monetary value of goods and services. This includes consumer spending, government spending, net exports, and total investments. One can look at it as a “scorecard” of the country’s economic health.
The GDP will be adjusted for inflation and population. The growth rate compares the annual or quarterly change in the U.S economic output—which will reflect how fast or slow the economy growing.
The 3% GDP rate growth reflects activity for April, May, and June—which also coincides with President Donald Trump‘s tariffs. But prior to that, imported products jumped in the first quarter as companies were looking to get ahead of the tariff announcement.
The beginning of April marked Trump’s plan to impose reciprocal 10% reciprocal tariffs on imports from all countries, but higher rates for other countries. China saw steeper tariffs at 34% tariff on imports, a 20% tax on imports from the European Union, 25% tax on South Korea, 24% tax on Japan and 32% on Taiwan.
But this week, Trump announced a U.S. and EU 15% tariff compromise. This trade war may not be truly reflected in the most recent GDP number.
“A downturn in imports, likely driven by actual and threatened tariffs, pushed measured economic activity higher, because imports are subtracted from overall GDP, and this is especially true relative to the first quarter when businesses appear to have stocked up on imported inventories,” explains Hale.
That’s because of the decrease in investment led by inventory declines.
What remains to be seen is if the Federal Reserve will touch interest rates when it wraps up its two-day meeting Wednesday. President Trump was quick to react to the GDP number on social media: “2Q GDP JUST OUT: 3%, WAY BETTER THAN EXPECTED! “Too Late” MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!”
Housing activity
The housing sector is impacted by the country’s overall economic activity because it impacts production which generates jobs and income, Hale explains.
“When the economy is healthy, workers have wages to spend on housing—whether that’s homes they will buy or rent,” says Hale. “This quarter’s data offered modest positive signs here. Nominal personal income rose by 4.9% from last year and 1.3% in the quarter, with personal consumption or spending picking up by 1.4% in the quarter.”
She adds, “At the same time, housing construction and home sales feed into the measure of overall economic activity, and with home sales stuck at long-term lows and construction softening, the contribution wasn’t positive this quarter.
“Residential private investment declined by 4.6% in the second quarter from the first. This was enough to shave nearly 0.2 percentage points from total economic activity.”