Second Quarter 2025 Preliminary US Real GDP on Target With Forecast

Preliminary second quarter US Real GDP data was released today. The second quarter data was essentially identical to our forecast prepared with June 2024 data, four quarters ago (99.96% accuracy).

The normality of the second quarter GDP data and our forecast accuracy underscores a point our speakers and economists have been emphasizing for months (as it relates to this trade war specifically) and decades (as it relates to most non-economic disruptions in general): The economic fundamentals of consumers and businesses are the primary drivers of the US economy, and examining a system of leading indicators is still the most accurate way to forecast and plan for the future.

Topics like tariffs, consumer confidence, and party politics sell newspapers, generate clicks, and make for interesting conversations. While these topics can absolutely impact certain industries and businesses, they are decidedly not the primary determinants of aggregate economic activity.

Looking at the second quarter data, a few themes emerge:

• Consumers: The increase in consumer spending was normal, albeit on the lower side of normal.
  
  
• Businesses: Investment declined sharply, but that in isolation is misleading, as it surged in the first quarter while tariffs distorted investment and inventory decisions. To adjust for this, we examined investment over the entirety of the first half of the year. This increase was normal.
  
  
• Government: Like consumer spending, government spending increased by a normal — though on the lower side of normal — percentage.
  
  
• Trade: The trade deficit narrowed by a record percentage after increasing by a record percentage in the prior quarter as firms sought to frontload imports in advance of tariffs. The decrease in imports from the first quarter was the second largest on record, surpassed only by the COVID-19 shutdowns that influenced the second quarter of 2020.

In plain English, the economy is on generally solid, albeit unspectacular, footing. Tariffs are distorting economic activity, but we are not in a recession.

The economic evidence supports our decision to keep our forecast for US Real GDP growth for the remainder of 2025 and through at least 2026 in place. Encouraging factors include, but are not limited to:

• A more than three-year high in the monthly value for the OECD’s US Leading Indicator.
• June was the first month since mid-2022 where we saw a positive rate of change in job openings compared to the same month one year prior.
• A nascent upturn in the US Real Personal Income 3/12 rate-of-change (both with and without transfer receipts).
• A decrease in economic uncertainty that is likely to lead to higher industrial activity, retail spending, and capex as we move into 2026.
• The pace of growth for inflation-adjusted spending on goods is just off a three-year high (3/12).
• A slight dip in credit card delinquencies and an increase in the percentage of people paying off their credit card balance in full each month.

This is not to say the US economy is slated for breakneck growth. It’s not. Think mild growth. We are carefully monitoring downside risk factors:

• Weakness in single-family housing starts
• An ISM Non-Manufacturing PMI oscillating around 50
• Descent in the ITR Retail Sales Leading Indicator™

What should you do with all of the above information? Ensure you don’t fall into the trap of thinking that planning is hopeless in periods of volatility.

We have tools that you can count on to guide your planning. Businesses and individuals that act with conviction to capitalize on the economic growth we are forecasting in the second half of this decade will put themselves in the best position to maximize profits and thrive, not just survive, in the subsequent depression period in 2030–2036.

Would you benefit from additional certainty and forecast accuracy in preparing your business or your own finances for the future? Reach out to us today!