As we look back on the first half of the year, one thing is clear: it’s been a bit of a rollercoaster ride for the economy.
In the first quarter (January through March), real GDP—a measure of our country’s total economic output—dropped slightly by 0.2%. That had some people claiming the economy was heading downhill. But strangely enough, industrial production (which tracks things like manufacturing and factory output) grew at a strong 4.5% rate in the same period. So, what happened?
Most of the GDP drop came from a temporary spike in imports caused by companies trying to beat upcoming tariffs. In other words, businesses bought a lot of goods early to avoid paying more later. If you take that out, the economy was still growing underneath the surface.
Now, in the second quarter (April through June), we’re seeing the opposite story. The Atlanta Fed expects real GDP to grow at 3.4%, and some think that might even be too low. If trade levels settle back down, the real growth rate might be closer to 5%.
Still, the picture gets fuzzy. Some are calling this growth the beginning of “The Trump Boom,” but we’re not convinced just yet. Industrial production appears to be slowing down, and retail sales (after adjusting for inflation) have fallen 1.2% since the end of last year. It’s tough to say if this is the start of a boom or just a bounce.
To get a clearer view, we focus on something called “core GDP,” which looks only at consumer spending, business investment, and homebuilding. This avoids the ups and downs caused by trade and government spending. Core GDP seems to be growing at its slowest pace in over two years.
Inflation, which had been a big problem, is finally slowing down—thanks in large part to the Federal Reserve’s higher interest rates. But looking at inflation year-over-year won’t tell the whole story. Because inflation slowed last summer, it may not look like we’re making more progress now. Instead, it's smarter to look at 3- and 6-month trends to see where things are really headed.
The Fed may not cut interest rates until September, especially if they keep believing that tariffs cause inflation—even though the data doesn’t support that. Still, as the economy cools off, rate cuts will probably follow.
There’s also been concern about rising tensions in the Middle East, especially with Iran. While there’s always a chance that could affect oil prices in the short term, many countries—including China and Iran itself—don’t want to see oil prices skyrocket. If prices do rise, U.S. oil production is likely to ramp up quickly.
Our biggest worry? If U.S. military involvement in the region grows. That could shift political focus away from important financial issues here at home, like extending tax cuts or reducing government spending.
As always, we’re keeping a close eye on all of this for you. Despite the noise, we remain focused on long-term planning, smart investment decisions, and helping you stay confident in your financial future.
My Best,
Ryan