U.S. Economics – Growth

Intro

Real GDP for 2Q25 expanded at a 3.0% quarter-over-quarter annualized rate compared to the -0.5% contraction in the first quarter. Year-over-year growth remained at 2.0%, unchanged from the previous quarter. The quarterly rebound reflected mixed performance across major components, with consumer spending maintaining modest expansion while investment activity shifted down due to a reversal of the previous quarter’s inventory build. While this is lagging data, its worth highlighting that the U.S. economy avoided reaching recessionary growth levels, which was in-line with our expectations and further justifies the Fed’s patient monetary policy stance.

The Signals:

• • Real Gross Domestic Product
    • Real GDP expanded at a quarter-over-quarter seasonally adjusted annualized rate (q/q saar) of 3.0% and 2.0% year-over-year (y/y), compared to Q1 2025’s -0.5% quarterly and 2.0% year-over-year.
      • Net exports provided the largest positive contribution at +5.0 percentage points, driven by declining imports, while gross private domestic investment was the largest drag at -3.1 percentage points, primarily from inventory changes.
  • Personal Consumption Expenditures
    • Real PCE grew by 1.4% q/q saar and 2.4% y/y, compared to Q1 2025’s 0.5% q/q saar and 2.7% y/y.
      • Goods spending accelerated by 2.2% q/q saar from 0.1% in Q1, while services spending increased to 1.1% from 0.6%, with both categories contributing +0.5 percentage points to GDP growth.
  • Gross Private Domestic Investment
    • Investment contracted by 15.6% q/q saar in the second quarter and slowed to -0.1% y/y.
      • This contraction was largely driven by a significant reversal of inventory growth, which swung from a +2.6 percentage point contribution to GDP in 1Q25 to a -3.2 point drag in 2Q25.
  • Net Exports
    • Net exports exhibited an expected reversal in terms of its contribution to GDP growth, moving from a -4.6 point drag to +5.0 points in 2Q25.
      • We will continue to pay close attention to port traffic and logistics activity for signs of further abnormalities in import data given their recent outsized impact on headline growth.
  • Government Spending
    • Q2 2025 growth reached 0.4% quarterly (SAAR) and 2.0% year-over-year, compared to Q1 2025’s -0.6% quarterly and 2.6% year-over-year.
      • Federal spending contracted 3.7% q/q saar while State & Local spending expanded 3.0%, with their contributions to GDP growth offsetting each other at -0.32 and +0.32 percentage points respectively.

Key Takeaways:

• Overall, 2Q25 GDP provided additional evidence that the U.S. economy stayed above recessionary growth levels, further justifying the Fed’s patient monetary policy stance.

Visuals:

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.