Strong consumer spending, despite tariffs, was a key driver.The U.S. economy rebounded in the second quarter, with the gross domestic product (GDP) growing by 3.0%, according to the U.S. Bureau of Economic Analysis (BEA).The robust numbers, which topped estimates of 2.3% GDP growth, end any talk of recession, at least for now. It follows the first quarter where the economy shrank by 0.5%. That marked the first time the economy had receded in three years. A recession is typically defined as two or more quarter in a row of a negative GDP.“We expect some reversal of tariff front loading activity in 2Q. Net exports are expected to contribute positively, as imports have fallen sharply following last quarter’s spike ahead of tariffs. Inventories, however, are likely to drag on growth after last quarter’s buildup,” Vanguard economists wrote in their GDP preview. “Consumer spending should contribute positively and recover somewhat after a soft patch in 1Q as weak services spending outweighed the surge in purchases of durable goods; this would still be below its pre-pandemic median pace of 2.4%.”Consumer Spending Is a Key DriverThe rise in the GDP in Q2 is mainly related to a downturn in imports and an acceleration in consumer spending.Imports are a subtraction in the calculation of GDP, so fewer imports means that less is subtracted, thus increasing the GDP. Within imports, the decrease was primarily due to a drop in goods, led by nondurable consumer goods, mainly medicinal, dental, and pharmaceutical preparations, including vitamins.The rise in consumer spending may be a bit of a surprise, indicating that tariffs did not have a major impact on consumers.The top contributors to consumer spending were health care, food services and accommodations, and financial services and insurance, along with motor vehicles and parts and nondurable goods. The increase within health care was from both outpatient services and hospital and nursing home services. In financial services, portfolio management and investment advice services were the main contributors.Exports and Private Investment DropThese gains were partly offset by decreases in private sector investment and exports.The decrease in investment was mainly caused by a drop in private inventory investment. This included lower investments in nondurable goods manufacturing — mainly, chemical manufacturing – and in wholesale trade.The decrease in exports was primarily related to fewer exports of goods, led by automotive vehicles, engines, and parts.Overall, the sum of consumer spending and gross private fixed investment rose 1.2% in the second quarter, which was actually down from 1.9% in the first quarter.Further, the price index for gross domestic purchases ticked up 1.9% in Q2 compared to a jump of 3.4% in the first quarter.Also, the personal consumption expenditures (PCE) price index increased by 2.1% in Q2, down from 3.7%. Core PCE in Q2 rose 2.5% year over year, versus a 3.5% increase in Q1.Original Post