Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2025 (April, May, and June), according to the advance estimate released by the US Bureau of Economic Analysis. In the first quarter, real GDP decreased 0.5 percent.
The increase in real GDP in the second quarter primarily reflected a decrease in imports, which are a subtraction in the calculation of GDP, and an increase in consumer spending, the bureau added. Decreases in investment and exports partly offset these movements.
Note that imports are a subtraction in the calculation of GDP, which means a decrease in imports results in a positive contribution to GDP. Imports decreased, in part, as a result of new tariffs imposed on many countries’ imports by the Trump administration.
Understanding GDP
Imagine a country like a giant factory. This factory makes all sorts of things: cars, pizzas, video games, haircuts, doctor’s visits, new buildings — you name it.Gross Domestic Product, or GDP, is basically the total value of everything that “factory” (the country) produces in a certain amount of time, usually a year. Think of it like this:
- “Gross” means “total” – we’re looking at the big picture, all the stuff produced.
- “Domestic” means “within the country” – we only count things made inside the country’s borders, whether it’s by a company owned by people in that country or a foreign company with a factory there.
- “Product” means “goods and services” – it includes physical items you can touch (like a new phone) and things people do for you (like getting your car fixed).
GDP is like a report card for a country’s economy.
If GDP is increasing, it generally means the economy is healthy and expanding. More goods and services are being produced, which often leads to increased job opportunities, more disposable income for people to spend, and a higher standard of living. It’s as if the factory is producing an increasing amount of cool stuff, and everyone is benefiting. If GDP is decreasing, it can be a sign of trouble, like a recession. The factory is producing less, which can result in job losses, reduced financial resources, and a more challenging economic situation.
To avoid double-counting (such as counting the tires and the car they go into), GDP only counts “final goods and services.” This means:
- What consumers buy: This is the biggest part! Things like your food, clothes, movie tickets, and haircuts.
- What businesses invest: When companies build new factories, buy new machines, or build new homes, that counts as investment.
- What the government spends: Money the government spends on things like roads, schools, military equipment, and paying teachers and police officers.
- Net exports: This is the value of what a country sells to other countries (exports) minus what it buys from other countries (imports). If a country exports more than it imports, it adds to GDP.
So, when you hear about GDP, remember it’s just a way of measuring how much a country is producing, and it gives us a good idea of how well the economy is doing.
Editorial
Some economists hypothesize that the modest but undeniable increase in the nation’s GDP was skewed high by shifting tariff policies. Those policies, which have been “on again off again” in recent months, certainly contributed to the drop in imports, which skews the GDP up. But underlying the GDP is perhaps a danger sign in that investment in US businesses fell. While the headline GDP number increased, the details of the Commerce Department’s report suggest that declining imports largely drove the rebound, masking underlying weaknesses in the economy.
One such weakness is the decrease in business investment. Business investment is a key determinant of long-term economic growth and contributes significantly to business cycle fluctuations. A decrease in investment could signal slower future growth and potentially lead to lower productivity and slower income growth. Consumer spending growth, a significant driver of the economy, also moderated in Q2, further suggesting a broader slowdown.
But we urge caution in interpreting these numbers. Business cycles, particularly investment, are volatile and can fluctuate significantly quarter-to-quarter. Investors may simply be feeling out the new administration and the policies being implemented, unsure of which way the economic winds will blow in the long term. This would tend to slow business investment.
