Lower imports lead to higher GDP growth in second quarter; inflation still a concern

U.S. real gross domestic product jumped 3.8% (seasonally adjusted annual rate) in the second quarter of 2025, recovering from a revised -0.6% in the first quarter. The main reason for the rebound was the drop in imports once the newly imposed tariffs started to take effect. The unusual volatility of trade and inventories overshadowed other movements in the data. Both nonresidential and residential investment were down slightly. Spending cuts at the federal level were almost exactly matched by increases at the state and local level. Finally, consumer spending was better than the first quarter, but below recent trends.

Inflation ticked up slightly. This was at least partially due to some of the tariffs being passed along to consumers. The Midwest economy continued to lag the national economy due to the struggling agricultural sector. Local labor market numbers showed some improvement with continued low unemployment though payroll jobs remained lower than a year ago. As in the first quarter, our Business Outlook Survey showed respondents more optimistic about their own business than the national economy, though sentiment about both their own business and the national economy turned more negative in the second quarter. Respondents also reported higher costs, especially for raw materials and labor, mirroring the national data.

Print Reports