Initial estimates of third-quarter economic activity indicate a downshift in output, based on the median for a set of nowcasts compiled by CapitalSpectator.com. Although the current numbers don’t anticipate recession conditions, the median estimate highlights a significant slowdown vs. Q2’s increase.
Q3 is on track for a 1.6% rise in output (annualized changed), according to today’s median estimate. That marks a sharp drop from the 3.0% increase reported for Q2. The Bureau of Economic Analysis is scheduled to publish its initial Q3 GDP data on October 30.
It’s still early in the quarter and so the incoming data could (and probably will) alter the nowcast in the weeks ahead. Meantime, the available numbers suggest managing expectations down and so the focus will be on how, or if, new data changes the calculus.
A key risk factor in assessing economic activity for Q3 and beyond: tariffs. “Signs of tariff-related pass-throughs are becoming more apparent, and we anticipate the coming months will be pivotal in assessing how well the economy is able to absorb these pressures,” notes Vanguard’s economic team.
The effective average US tariff rate is now roughly 18%, according to the Yale Budget Lab. This is the highest tariff rate since the Great Depression and 15 percentage points above the rate at the start of 2025.
“The increase in prices [due to tariffs] and the commensurate reduction in purchasing power will likely have a negative impact on US growth,” economists at Deloitte predict. “Think of that as an annual tax increase of 2.1% of GDP, more than offsetting the impact of the tax cuts in the bill recently passed by the US Congress. Moreover, even if the tariffs are not fully passed onto consumers, then businesses will see a sharp decline in profits. Either way, there could be a negative economic impact.”