Posted originally on Aug 29, 2025 by Martin Armstrong |  

The U.S. economy did post a headline-grabbing 3.3% gain in Q2, but that figure is misleading. It’s driven largely by the collapse in imports—not by true domestic growth. Remember the GDP formula: GDP = C + I + G + (X – M). A sharp drop in imports boosts that (X – M) term artificially, making GDP look better even while the underlying fundamentals stagnate.

Consumer spending rose only modestly at 1.6% and private domestic final sales rose 1.9%. They relay a lower estimate and then state the true figure, acting as if the figure should be celebrated. Meanwhile, business spending remained weak.

We’ve also noted that household debt surged by $185 billion in Q2, with rising mortgage, credit-card, auto-loan, and student-loan balances. Delinquency rates are up, and real incomes are under pressure. Consumers are treading in deep waters.

Imports tanked by 29.8% after nations began to panic buy last quarter ahead of tariffs. Exports declined 1.3%. The import volatility has inflated figures and does not mark sustainable economic growth. Investment into the US has also improved as capital has nowhere else to go, but again, the expansion is not enough for the long-term.

The economy contracted 0.5% in Q1, and the Commerce Department is reporting that the economy rose 3.3% in Q2, with growth averaging 2.1% or a bit above 1% per quarter. Stagflation is not simply high inflation with low growth. It is the direct result of government mismanagement. When politicians and central banks try to manipulate the economy, they destroy confidence. That is the fuel behind stagflation.