Economic expansion in the second quarter of the U.S. is propelled by tariff disruptions, leading to a rebound in the nation's GDP growth.
The United States' economy expanded by an annual rate of 3.0% in the April to June period, according to the Department of Commerce. This growth rate, while robust, is being questioned by analysts due to potential distortions caused by shifting trade flows over President Donald Trump's tariffs.
The growth was primarily due to a decrease in imports, as businesses rushed to stock up on products at the start of the year to avoid tariff hikes. However, this build-up is now unwinding, leading to a surge in imports ahead of tariff hikes in the first quarter followed by a sharp plunge in the second quarter. This volatility in trade-related GDP components created by the tariffs has raised concerns about the sustainability of the economic growth.
Consumer spending increased at a moderate pace during the April to June period, contributing to the GDP growth. Inflation pressures from tariffs showed some signs of easing, with the core price index for consumer spending rising 2.5% annually in Q2, down from 3.5% in Q1.
The potential impact of tariffs on inflation and households' spending power is a concern for analysts. Trump's incoming wave of tariff hikes could cause an uptick in inflation, which could erode households' spending power, potentially affecting consumption patterns.
The potential impact of Trump's tariffs on GDP growth through net exports is a record-breaking concern, according to analysts at Goldman Sachs. The imports surge ahead of tariff hikes in the first quarter this year led to the largest drag on GDP growth from net exports on record.
Regarding sustainability, analysts suggest that without the temporary effects of tariff-driven trade and inventory adjustments, the economy's growth trend remains relatively weak, around 1.1–1.2%, which is below the long-term average of about 1.8%. This slower pace and inflation trajectory influenced monetary policy considerations, with expectations for the Federal Reserve to consider rate adjustments in response to these underlying conditions.
In summary, while Q2 2019 GDP expanded robustly on paper, much of this reflected artificial factors related to tariff anticipation and implementation rather than a durable acceleration in economic activity. The future sustainability of GDP growth depends on trade policies and their broader impacts on investment, consumer behavior, and inflation.
- Wealth-management firms are closely watching the ongoing trade disputes, as the tariffs could significantly affect investors' portfolios, given the close relationship between the finance industry and business.
- Personal-finance advisors are concerned about the potential long-term impact of tariffs on households' spending power, which may lead to changes in their financial planning strategies.
- As the government continues to implement tariffs, the business community is closely monitoring the situation, as it could impact their investing decisions, especially in the areas of wealth-management and personal-finance.
