Slower Economic Growth Ahead?

Popular Economics Weekly

Second-Quarter GDP Growth Estimate Increased
“On July 7, the GDPNow model estimate for real GDP growth in the second quarter of 2026 is 1.4 percent, up from 1.2 percent on July 1.”

AtlantaFed

What is happening to U.S. economic growth in 2026? The Atlanta Federal Reserve is one of the few organizations brave enough to attempt to predict future growth in constantly updated forecasts. And the news is not good for most Americans.

The culprit for the volatility in GDP second quarter economic growth predictions by the Atlanta Fed’s GDPNow estimate that had dipped as low as 1.2 percent and is still a mere 1.4 percent (in the above GDP graph), is the large increase in our trade deficit.

And this was the gap that President Trump wanted to shrink with his new tariffs. It has worsened largely because Trump and his advisors don’t know what they are doing; i.e., haven’t taken the time to make the tariffs legal by negotiating with trade partners after doing the required research and then getting congressional approvals, rather than via his illegal executive orders.

The GDPNow model was predicting 3-4 percent Q2 GDP growth until last June as per the graph. But the trade gap has suddenly jumped 42.2% to $77.6 billion, the highest level since March 2025, said the Commerce Department's Bureau of Economic Analysis and Census Bureau.

The most hurt is being done to American workers, since the enlarged trade deficit mirrors the production that had shifted overseas. So many of the components that go into the surging AI build-out are now being imported--especially computers and computer chips—which means an increasing share of the buildout is benefiting foreign workers.

This is a main reason for the alarming drop in June job numbers to a mere 57,000 workers, most of them in healthcare. Some 755,000 workers dropped out of the labor force in June because “jobs are hard to get,” said the Conference Board’s latest consumer Confidence Survey.

What's more, job gains in May and April were revised down to a combined 277,000 from a previous 351,000 - 74,000 fewer than previously reported.

Trump’s Iran War disaster is another reason for the hiring slowdown because higher energy prices from the Middle East is elevating inflation. Wall Street is hoping the A.I. revolution will boost labor productivity to such an extent that it will tame inflation, but without creating many new jobs.

The trade gap jumped 42.2% to $77.6 billion, the highest level since March 2025.

The major culprit; capital goods imports soared $1.1 billion to a record high $128.0 billion that subtract from GDP growth, which calculates just what is produced domestically.

We could be producing more of those imports domestically. But that hasn’t happened so exports dropped 3.2% to $317.7 billion in the latest report.

The shrinking labor force will also shrink GDP growth since fewer workers plus higher inflation means less will be produced domestically because of the higher costs, unless A.I. delivers on its promises of higher productivity. And that will take years, experts have been saying.

All this means fewer Americans will benefit for some time. The International Monetary fund predicts prices won’t come back down until the end of 2027, and only if the Iran war ends.

The official scorecard of the U.S. economy was updated to show the economy grew at a 2.1% annual pace in the first three months of the year, faster than the previously reported 1.6%.

Is that good news? Maybe, but Q1 consumer spending was the weakest in four years.

There will be more robots, Claude, ChatGPT, Open AI, etc., etc. but a shrinking workforce pays less taxes to support public policies, social security, Medicare. And don’t forget the public debt, which is soaring.

Harlan Green © 2026

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