The nation’s economy grew at a stronger-than-expected rate in the second quarter due to a drop in imports and healthy consumer spending, but there are weaknesses in business investment and home sales.

The Commerce Department reported that the U.S. gross domestic product rose at a seasonally and inflation-adjusted 3% rate in the second quarter. That was a reversal from the first quarter in which the economy shrank at a 0.5% annual rate as U.S. businesses stocked up on imports ahead of expected tariffs imposed by the Trump administration. Economists surveyed expected second-quarter growth of 2.3%. Despite the return to growth in the second quarter, there was weakness in business investment after Q1’s double-digit expansion. Residential investment, which includes homebuilding and home sales, contracted for a second straight quarter.

The Commerce Department’s report on prices was welcome news. The price index for gross domestic purchases increased 1.9% in the second quarter – a big drop from the 3.4% increase in the first quarter. The personal consumption expenditures price index, which is watched closely by the Federal Reserve, increased 2.1%, compared with a 3.7% gain in Q1. Excluding food and energy prices, the PCE price index increased 2.5%, compared with a Q1 increase of 3.5%. READ MORE >

Job gains in the second quarter were better than expected. There were upward revisions for April and May by the Labor Department and 147,000 positions were added in June, more than the 110,000-job estimate and signaling a generally healthy economy.

“The solid June jobs report confirms that the labor market remains resolute and slams the door shut on a July rate cut,” since the Federal Reserve is unlikely to reduce interest rates when the economy is growing and jobs are being created, said Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

But there was a reduction in private sector hiring, which totaled 74,000 jobs in June, the fewest business hires since October. The end-of-the-quarter downshift followed 133,000 private-sector jobs added in April and 137,000 added in May. The Wall Street Journal was blunt in its assessment of the recent economic data, writing, “Many private employers aren’t hiring anymore.” READ MORE>

The Federal Reserve held interest rates steady in the second quarter and signaled that, while still planning on two cuts this year, it was holding off on the next rate reduction until it determined whether the new tariffs affected prices and hiring and fueled inflation.

“Unless we see a really, really rapid deterioration in the labor market we won’t see a cut until September, and maybe not even then,” Fed Chair Jerome Powell told reporters after the Fed’s recent quarterly report.

The central bank’s Federal Open Market Committee reduced the rate three times last year as inflation eased, but Powell said tariffs would likely reverse the progress against inflation and push it higher in the coming months.

For the Fed’s semi-annual report to congress in late June, Powell told house and senate members, “The effects on inflation could be short-lived, reflecting a one-time shift in the price level.”

“It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices and ultimately on keeping longer-term inflation expectations well anchored,” Powell said. READ MORE >