But it’s the trade war that’s partly holding things back now.

Companies are hesitating to expand as they wait to see if the U.S. and China resolve their differences, according to the Fed’s Beige Book and other anecdotal evidence. Caterpillar Inc., a frequent economic bellwether, said Wednesday that tariffs are boosting production costs and competition in China is eating into sales.

The grounding of Boeing Co.’s 737 Max jet for safety reasons is also denting the economy, with the company’s plane orders slowing to a trickle. The Institute for Supply Management’s index of manufacturers’ new orders fell in June to the lowest level since 2015, suggesting broader factory weakness will persist in coming months.

Trade Deficit

Aside from those issues, a widening trade deficit and less inventory accumulation may have knocked as much as 1.7 percentage point off the headline growth figure, according to ING Bank NV. Those categories added a combined 1.5 point to growth in the first quarter. Imports likely jumped last quarter before the U.S. and China reached a trade truce in late June.

“There certainly was still a lot of flux as far as businesses looking at the outlook in regards to trade and having to manage around that,” said Sam Bullard, senior economist at Wells Fargo & Co.

Even so, the headwinds haven’t made much impact on the chief pillar of the economy -- consumer outlays, which probably climbed at a 4% pace during the period. Consumption looks to have rebounded from a paltry 0.9% first-quarter rate, which reflected the federal government shutdown and extremely cold weather in parts of the U.S.

“The good news is that the consumer came roaring back in the second quarter,” said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. “When you strip out net exports and inventories, that’s really the engine of the economy.”

With companies continuing to add workers at an elevated pace, and wage gains remaining solid, the Fed is seen favoring a less-dramatic quarter-point cut over a half-point reduction. The bigger question is whether the headwinds start filtering through to consumers.

“Does that potentially bleed over into the service sector and consumer spending? That’s what they’re looking at hard right now,” Bullard said.