Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
The strong GDP growth of 3.8% logged in the second quarter won’t last. The import surge in the first quarter, before tariffs took effect, subsided, removing a major drag on the economy and pushing up the GDP figure for the second quarter. To see what the underlying growth trend is, the first- and second-quarter growth numbers should be averaged, which works out to 1.6% at an annual rate in the first half of the year. Third- and fourth-quarter growth should revert to a more normal pattern, with second-half growth coming in at a still-subdued 1.4%.
2025 annual growth will be higher, at around 1.8%, because the annual growth figure is measured from 2024’s mid-point through mid-2025. We expect this sub-2% growth trend to continue through 2026.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Consumer spending was subdued in the second quarter for the second time this year. While purchases of durable goods bounced back from their first-quarter drop, consumption of services remained weak. Business purchases of equipment held up, but the declines in both housing and non-residential construction got worse. Government spending was nearly a wash: Federal defense and state and local government spending were positive, but federal nondefense spending dropped a whopping 12.5% at an annual rate.
Trade deals with Japan and the European Union have reduced the uncertainty that exporters and importers face, but at the cost of new tariffs that will hit importers and consumers. The effective tariff rate on imports is now around 15% across all goods. Higher rates are being imposed on common goods imports, such as home furnishings, toys, sports equipment and the like, but have not had a large impact on the Consumer Price Index yet. Price increases on motor vehicles will likely be coming later in the year as inventories of pre-tariff imported vehicles run low.
Tariffs will likely not cause a broader recession in the economy, however. Consumer sentiment is still low, though much more so among Democrats and independents than among Republicans. The Trump administration has not only been cutting federal employees, but also canceling contracts that sustain government contractors, nonprofits and universities. The ripple effect of canceled contracts beyond government agencies is unknown, but potentially high. Consumers will likely begin to save more, as there are some signs of slowing in the labor market. Foreign tourism is likely to be down as well, perhaps subtracting a tenth of a point from GDP growth over the course of the year.
Source: Department of Commerce: GDP Data
Read more
-
IRS Names Its First CEO: But He’s Also Still Running Social SecurityTax News Will this new role make it difficult to address emerging issues like budget and staffing cuts and customer service concerns?
-
Ohio Property Tax Shock: Why Your New Assessment Is So High (And What Comes Next)State Taxes Higher home valuations in Ohio have led to homeowner property tax relief. But is it enough?
-
Government Shutdown to Delay Data, Including Key Jobs ReportWhile government shutdowns typically don't impact stock returns, they can delay the release of key economic data – including the monthly jobs report.
-
Japan Enters a New Era of Risk and ReformThe Kiplinger Letter Japan has entered a pivotal moment in its economic history, undertaking ambitious policy and structural reforms to escape from decades of stagnation.
-
After Years of Stagnant Growth, Hope Emerges for EU EconomyThe Kiplinger Letter Can a German fiscal push outweigh French political peril?
-
September Fed Meeting: Updates and CommentaryThe September Fed meeting is a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. will do about interest rates.
-
Hot August CPI Report Doesn't Shift the Rate-Cut Needle: What the Experts SayThe August CPI came in higher than forecast on a monthly basis, but Wall Street still expects a rate cut at next week's Fed meeting.
-
Trump's Economic InterventionThe Kiplinger Letter What to Make of Washington's Increasingly Hands-On Approach to Big Business
-
Dismal August Jobs Report Offers Rate-Cut Relief: What the Experts Are SayingThe August jobs report came in much lower than expected, lifting the odds that several rate cuts will come through by year's end.
-
AI Start-ups Are Rolling in CashThe Kiplinger Letter Investors are plowing record sums of money into artificial intelligence start-ups. Even as sales grow swiftly, losses are piling up for AI firms.
