Economic growth for the second quarter was revised up three tenths of a percent to 3.3%, the Bureau of Economic Analysis said Wednesday in its first revision of the data.
The report is the second of three estimates for gross domestic product. The headline number can change during such revisions. Still, whatever the final GDP number for the second quarter is, it has shown that the economy bounced back after a contraction in the first quarter.
The growth in GDP in the second quarter, adjusted for inflation and seasonal variations, has been stronger than most economists had expected earlier this year and allays fears about a recession. It also gives President Donald Trump more leeway to pursue his agenda.
The second-quarter report is a big change from the first quarter of this year, when GDP fell 0.5%. That first quarter report raised fears that the economy was going to fall into a recession. The decline, though, was largely because of a big surge in imports as businesses rushed to build up inventory ahead of Trump’s tariffs. The rebound in this latest report reflects a reversal of that trend.
Trump’s aggressive tariff policy dominated his early tenure. The blanket imposition of major tariffs on countries worldwide in April led to a major drop in stock prices and further buttressed fears that an economic downturn was coming.
But the latest data show the economy was able to rebound from that slump and is still chugging along, although there are indications that the labor market is slowing.
The July jobs report revealed that some 258,000 fewer jobs were added in May and June than previously reported. And while a jobs report can be a one-off aberration, the three-month moving average of job gains was just 35,000 in July, below the level needed to keep pace with population growth.
Trump ended up firing the head of the Bureau of Labor Statistics after the report was released.
But the major question now relates to the Federal Reserve. The Fed has, much to the chagrin of Trump and his allies, kept interest rates high and has not trimmed them since the start of this year.
Inflation is still above the Fed’s 2% level, but Trump officials have been pushing for the Fed to lower its interest rate target, arguing that doing so would help consumers and be even better for economic growth.
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There are expectations that the Fed will cut rates at its next meeting in September.
Investors put the odds of a rate cut at over 87%, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
