The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP grew at a 3.0% annual rate in the second quarter. I have some concerns, but it looks better than many economists had been anticipating.
Quarterly real GDP growth at an annual rate, 1947:Q2-2025:Q2, with the historical average since 1947 (3.1%) in blue. Calculated as 400 times the difference in the natural log of real GDP from the previous quarter.
With the new numbers the Econbrowser recession indicator index is up to 11.7%. This primarily reflects the drop in GDP that we observed in the first quarter. The index offers an assessment of where the economy was as of 2025:Q1. Since we started reporting this measure in 2005, Econbrowser reports the index with a one-quarter lag to allow for data revisions and to aid the algorithm in pattern recognition. Though up slightly, the latest value of 11.7% is not alarming.
GDP-based recession indicator index. The plotted value for each date is based solely on the GDP numbers that were publicly available as of one quarter after the indicated date, with 2025:Q1 the last date shown on the graph. Shaded regions represent the NBER’s dates for recessions, which dates were not used in any way in constructing the index.
The story in the second-quarter GDP report was the flip of the first quarter. In Q1 there was a surge in imports (which other things equal means lower GDP) as businesses built up inventories of imported goods in anticipation of tariffs. In Q2, imports fell dramatically (which accounts for much of the strength in GDP in Q2) with firms drawing down those inventories. Both residential and nonresidential fixed investment were weak in the second quarter.
Inventories are also the wild card in watching the effects of the tariffs on inflation. Some businesses may still be setting prices based on the historical cost of goods, meaning some of the inflationary effects are yet to come. Still, let us count our blessings that the actual current average effective tariff rate is lower than originally threatened.
As of this morning, anyway.
