This report marks a reversal from Q1’s 0.5% decline, which had been weighed down by a spike in imports and weaker household consumption linked to tariff uncertainty.
Imports Fall as Tariff Impact Shifts, Lifting GDP
The most significant contributor to the Q2 rebound was a drop in imports, which subtract from GDP calculations. In Q1, businesses accelerated imports in anticipation of tariff hikes following President Trump’s April 2 tariff declaration. That front-loaded activity reversed in Q2, easing pressure on GDP. While overall investment and exports declined during the quarter, the drag was more than offset by the reduction in import volume.
Consumer Spending Recovery Buoys Domestic Demand
Consumer spending, which had been subdued earlier in the year, gained traction in Q2, rising 1.4% compared to just 0.5% in Q1. This improvement signals a moderate recovery in domestic demand, though the pace remains below historical averages.
Real final sales to private domestic purchasers—a key gauge of private sector strength—grew just 1.2%, slowing from 1.9% in Q1, suggesting that private investment remains cautious despite the headline GDP gain.
Cooling Inflation Offers Additional Support
Price measures in Q2 also showed a pullback in inflation.
The gross domestic purchases price index rose 1.9%, down from 3.4% in Q1. The PCE price index increased 2.1%, and the core PCE, excluding food and energy, rose 2.5%—both figures lower than their prior quarter levels.
