US GDP for Q2 grew by 3.0%, exceeding the 2.4% estimate. However, this growth is not as strong as it seems, largely due to a significant drop in imports. Real final sales were only up 1.2%, the lowest since Q4 2022. Consumer spending increased modestly by 1.4%, a rise from last quarter’s 0.5%. Core PCE (Personal Consumption Expenditures) edged up to 2.5% from 2.3%. The overall PCE price level was 2.1%, below the expected 2.9%. Excluding food, energy, and housing, the PCE rate dropped to 2.2% from 3.5% last quarter. PCE services, without energy and housing, stood at 2.3%, down from 4.3% last quarter.

GDP Growth Estimate And Trade Impact

The Atlanta Fed’s GDP growth estimate rose to 2.9% from 2.4%. Trade contributed 0.5% to GDP, but inventory reductions pulled growth down. Private domestic demand slowed to an annualized 1.2%, down from 1.9% in Q1. Residential investment fell about 10%, partially balanced by gains in technology and intellectual property investments. Overall, the economic growth seems to stem from temporary trade improvements rather than ongoing domestic strength. The initial 3.0% GDP growth figure for Q2 may be misleading for our strategy. Real final sales to private domestic buyers, a crucial indicator of actual strength, decelerated to just 1.2%. This is the weakest since Q4 2022, indicating that domestic demand is weakening significantly. The report’s inflation data calls for a more cautious perspective. Although Core PCE was a bit hot at 2.5%, other critical areas, like PCE services excluding energy and housing, dropped sharply to 2.3% from 4.3% last quarter. This decline in inflation gives the Federal Reserve reason to adopt a more cautious stance in the coming months.

Economic Indicators And Strategies

The weak domestic outlook matches other recent data we’ve observed. The June 2025 jobs report showed non-farm payrolls adding just 150,000 jobs, while the unemployment rate rose to 4.1%. Consumer confidence has also decreased over the last three months, indicating a loss of consumer enthusiasm. In the upcoming weeks, we expect market volatility to rise as investors look beyond the headline figures. The CBOE Volatility Index (VIX) has been stable around multi-year lows of about 13, but the weaknesses in this report may drive it up. We should consider strategies that can benefit from a potential downturn or limit market gains. Reflecting on late 2023, we faced a similar scenario where slowing growth expectations led to a bond market rally, even as the Fed maintained rates. Now, we should think about purchasing puts or put spreads on broad market indices like the SPY to protect against a potential decline. Additionally, call options on Treasury bond ETFs like TLT could do well if the market anticipates earlier-than-expected rate cuts. In summary, the growth was heavily influenced by a temporary decrease in imports, which is not a sustainable driver. As we approach August 2025, we must pay attention to the weakening core of the economy. We expect upcoming employment and inflation data to confirm this slowing trend. Create your live VT Markets account and start trading now.

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