US Q2 GDP Growth at 3%, but Underlying Data Suggests Slowing Economy

US GDP grew at an annualized rate of 3% in Q2, beating expectations. However, the underlying data shows a slower pace, with core GDP at 1.2% and consumer spending at 70% of the economy. Economists point to net trade whiplash and tariffs as drivers of growth, but also note that core GDP, which strips out volatile activity, indicates the economy is slowing.

The U.S. economy demonstrated a mixed performance in the second quarter of 2025, with Gross Domestic Product (GDP) growing at an annualized rate of 3%, according to the latest report from the Commerce Department [1]. This figure exceeded market expectations but was driven by a rebound in consumer spending and a decrease in imports, which are subtracted from the GDP calculation.

However, the underlying data reveals a more nuanced picture. Core GDP, which strips out volatile activity such as trade and government spending, grew at an annual rate of 1.2% [1]. This indicates that the economy is slowing compared to the previous two years, when growth was nearly 3% [1].

Consumer spending, the largest driver of economic activity, rose at an annual rate of 1.4% in the second quarter [1]. This growth was supported by strong discretionary demand, as indicated by Mastercard's earnings report, which showed a 9% increase in gross dollar volume [4]. However, this growth was not enough to offset the negative impact of net trade whiplash and tariffs, which have been significant drivers of the economy's performance.

The impact of tariffs was evident in the GDP figures, with imports surging early in the year as businesses stockpiled goods before the tariffs took effect, and then dropping in the second quarter as the tariffs were implemented [1]. Exports also fell during the quarter, contributing to the slower overall growth rate.

Economists are projecting a slower pace of growth in the second half of the year, with annualized GDP growth expected to be around 1% [1]. This slowdown is attributed to increased prices for imported goods and uncertainty over the Trump administration's economic policies.

In contrast, Hong Kong's economy expanded at a robust 3.1% year-on-year in the second quarter, mainly supported by strong exports and improved domestic demand [3]. This growth was driven by resilient external demand and a temporary easing of US tariffs, which prompted "rush shipments."

Overall, the U.S. economy showed signs of recovery in the second quarter, but the underlying data indicates that the pace of growth is slowing. The impact of tariffs and net trade whiplash will continue to be a significant factor in the economy's performance.

References:
[1] https://www.npr.org/2025/07/30/nx-s1-5484219/economy-gdp-tariffs-growth
[2] https://www.bea.gov/data/gdp/gross-domestic-product
[3] https://www.tradingview.com/news/te_news:474096:0-hong-kong-q2-gdp-growth-rises-3-1-surpasses-expectations/
[4] https://www.reuters.com/business/finance/mastercard-signals-resilient-consumer-spending-profit-tops-estimates-2025-07-31/