Economic growth softened in the first half of the year, as tariffs and uncertainty upended business plans and scrambled consumers’ spending decisions.
Gross domestic product, adjusted for inflation, increased at a 3 percent annual rate in the second quarter, the Commerce Department said on Wednesday. That topped forecasters’ expectations and 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 included evidence to support both sides of the debate.
Consumer spending, the bedrock of the U.S. economy, grew at a 1.4 percent annual rate in the second quarter. That was an acceleration from the 0.5 percent rate in the beginning of the year, but well below the 2.8 percent growth in spending in 2024. That could be a sign that consumers, whose resilience has helped keep growth on track during a tumultuous economic period, are finally showing signs of strain.
But after-tax incomes, adjusted for inflation, grew at a 3 percent rate, suggesting the strong job market could allow consumers to keep spending.
Other parts of the report showed signs of weakness, however. Business investment slumped in the second quarter after surging in the first, and the housing sector contracted under the weight of high interest rates.
The big swing in the overall G.D.P. figures between the first and second quarters paint a misleading picture of the economy. That is because of the unusual patterns in trade and spending caused by Mr. Trump’s tariff policies, and by the confusing way that economic activity is measured.
When Mr. Trump returned to office, businesses and consumers anticipated that tariff rates would rise and rushed to stock up on foreign goods and materials before new duties took effect. That resulted in a surge in imports at the start of the year. That pattern reversed in the second quarter because many companies had already imported the goods they needed.
In the government’s accounting, imports are subtracted from G.D.P. because they are produced abroad, not domestically. The surge in imports at the start of the year subtracted nearly five points from growth that quarter; the decline in imports in the spring added more than five points to growth in the second quarter.
In theory, those big swings in imports shouldn’t actually detract from G.D.P. because they should be offset elsewhere in the data, either showing up as spending or as unsold products held in inventory. Spending and inventories are both counted as part of G.D.P.
In practice, though, the government is good at counting both imports and consumer spending, but often must rely on rough estimates for inventories, especially in preliminary data. The G.D.P. figures showed a big increase in inventories in the first quarter, as companies stocked up on goods, and a big slowdown in inventory growth in the second, as companies gradually sold off those stockpiles.
But the moves in inventories weren’t big enough to fully offset the swings in imports. Many economists expect the data to be revised to show bigger moves in inventories.
The second-quarter figures will be revised at least twice in coming months as more complete data becomes available. Those revisions could 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.
Ben Casselman is the chief economics correspondent for The Times. He has reported on the economy for nearly 20 years.
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