Surprise GDP rebound conceals vulnerabilities and raises some red flags

WEEK IN REVIEW

The U.S. economy grew at a 3% annual rate from April through June, surprising many economists who remain wary. Jacquelyn Martin — the associated press

A sign announces that a restaurant is hiring workers in Richardson, Texas, on July 15. Texas added 9.92 million jobs in the past half century, No. 1 in the U.S. The 181% growth is the fifth-fastest. LM Otero — The Associated Press

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The U.S. economy expanded at a surprising 3% annual pace from April through June, bouncing back at least temporarily from a first-quarter drop that reflected disruptions from President Donald Trump’s trade wars.

Still, details of the report suggested that U.S. consumers and businesses are wary about the economic uncertainty arising from Trump’s radical campaign to restructure the American economy by slapping big taxes — tariffs — on imports from around the world.

America gross domestic product — the nation’s output of goods and services — rebounded after falling at a 0.5% clip from January through March,.

The rebound was expected but its strength was a surprise: Economists had forecast 2% growth from April through June.

From April through June, a drop in imports — the biggest since the COVID-19 outbreak — added more than 5 percentage points to growth. Consumer spending registered lackluster growth of 1.4%, though it was an improvement over the first quarter’s 0.5%.

Private investment fell at a 15.6% annual pace, biggest drop since COVID-19 slammed the economy.

A drop in inventories — as businesses worked down goods they’d stockpiled in the first quarter — shaved 3.2 percentage points off second-quarter growth.

Fed sticks with patient approach

Federal Reserve Chair Jerome Powell gave little indication Wednesday of bowing anytime soon to President Donald Trump’s frequent demands that he cut interest rates, even as signs of dissent emerged on the Fed’s governing board.

The Fed left its key short-term interest rate unchanged for the fifth time this year, at about 4.3%, as was expected. But Powell also signaled that it could take months for the Fed to determine whether Trump’s sweeping tariffs will push up inflation temporarily or lead to a more persistent bout of higher prices. His comments suggest that a rate cut in September, which had been expected by some economists and investors, is now less likely.

There were signs of splits in the Fed’s ranks: Governors Christopher Waller and Michelle Bowman voted to reduce borrowing costs, and nine officials, including Powell, favored standing pat.

Trump gives Mexico 90-day tariff reprieve

President Donald Trump extended Mexico’s current tariff rates for 90 days to allow more time for trade negotiations, again relenting after threatening to raise levies on a major trading partner.

Earlier in July, Trump signaled plans to hike tariffs on Mexico’s exports to 30% from 25% starting last Friday, saying President Claudia Sheinbaum’s government hadn’t done enough to help secure their shared border. Many goods certified under a free-trade pact among the countries and Canada have remained exempt.

Trump announced the pause one day after posting on social media that his Aug. 1 deadline “WILL NOT BE EXTENDED.”

Union Pacific, Norfolk eye deal

Union Pacific Corp. agreed to acquire Norfolk Southern Corp. in a $72 billion cash-and-stock transaction, forming the only U.S. transcontinental railroad in what stands to be the industry’s largest deal ever.

The tie-up will marry Union Pacific’s network across the Western U.S. with Norfolk’s East Coast routes, reshaping a domestic rail market that’s now comprised of just a half-dozen companies. Observers predict other major deals could follow, as competitive pressure rises on rivals including CSX Corp. and Berkshire Hathaway Inc.’s BNSF.

The companies have already spoken with regulators, members of the Donald Trump administration and congressional lawmakers.

Approval is far from certain in an industry where regulators hold significant power to block consolidation.

Compiled from Associated Press and Bloomberg reports.