U.S. Economy Grows 3.8% in Q2 Due to Consumer Spending/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The U.S. economy expanded at a robust 3.8% annual rate in the second quarter, far surpassing expectations and marking a significant upward revision. A surge in consumer spending and a sharp drop in imports were key drivers behind the surprising growth. Despite trade tensions and investment declines, underlying economic strength appears firmer than previously thought.
US Q2 GDP Quick Looks
- Revised Growth: Q2 GDP upgraded from 3.3% to 3.8%.
- Q1 Drop: Economy contracted 0.6% in the first quarter.
- Consumer Spending: Jumped 2.5%, far above earlier estimates.
- Imports: Fell 29.3%, boosting GDP by over 5 percentage points.
- Core GDP Strength: Underlying measure rose 2.9% vs. 1.9% previously.
- Private Investment: Fell overall, including 5.1% drop in housing.
- Federal Spending: Dropped again, down 5.3% in Q2.
- Labor Market: Hiring slowed to 53,000 jobs/month recently.
- Fed Rate Cuts: Strong GDP could limit future rate reductions.
- Next Report: Q3 GDP initial estimate due Oct. 30.
Deep Look: US GDP Surges to 3.8% in Revised Second Quarter Growth
WASHINGTON — The U.S. economy grew at a much faster pace than expected in the second quarter of 2025, expanding at a 3.8% annual rate as consumer spending rebounded and imports sharply declined, the Commerce Department reported Thursday in a significant revision to its earlier estimate.
The updated figure marks a major acceleration from the previously reported 3.3% growth and a notable turnaround from the 0.6% contraction seen in the first quarter — the first quarterly economic retreat in three years. Economists had largely anticipated a repeat of the initial 3.3% estimate, making the upward revision a surprise.
Imports Drop, Consumers Spend More
The spring rebound was largely driven by a sharp 29.3% drop in imports, which added over five percentage points to the GDP calculation. In the first quarter, businesses had rushed to stockpile foreign goods in anticipation of steep tariffs from President Donald Trump’s escalating trade measures. The second quarter, however, saw that pattern reverse.
Consumer spending — which accounts for nearly 70% of economic activity — rose at a strong 2.5% pace, up from 0.6% in Q1 and well above the government’s earlier 1.6% estimate. Spending on services surged at a 2.6% rate, more than double initial projections.
“The U.S. consumer remained a lot stronger than many thought, even in the midst of a stock market sell-off and a lot of trade uncertainty,” said Heather Long, chief economist at Navy Federal Credit Union.
Core Growth Stronger Than Thought
A key measure of economic health — one that strips out volatile components like trade, inventories, and government spending — rose 2.9% in Q2, up from 1.9% in Q1. This figure reflects the combined strength of consumer activity and private domestic investment.
However, not all components of the economy shared in the surge. Residential investment fell 5.1%, and shrinking business inventories subtracted more than 3.4 percentage points from overall GDP. Federal government spending also contracted again, down 5.3% after a 5.6% decline in Q1.
Economist Stephen Stanley of Santander noted that overall growth still paints a mixed picture:
“GDP growth averaged 1.6% in the first half of 2025 and consumer spending 1.5% — not great, but much better than initially thought.”
Trump’s Tariff Policy Reshaping Trade Dynamics
President Trump’s second-term trade policies — a sweeping set of import taxes aimed at reshoring industry and funding tax cuts — continue to reshape U.S. trade flows and domestic investment. Tariffs on steel, autos, aluminum, and a wide range of global imports have made planning difficult for businesses.
While the White House sees tariffs as a tool for economic revival, most mainstream economists argue the opposite: tariffs raise prices, reduce efficiency, and risk inflation. So far, however, inflationary impacts have remained modest.
The unpredictable nature of Trump’s trade actions — imposing, suspending, and reimposing tariffs — has led to business uncertainty and hiring hesitation.
Labor Market Slowing Down
Although the U.S. job market had been resilient in the post-pandemic recovery — averaging 400,000 jobs added monthly between 2021 and 2023 — the pace has slowed significantly. Labor Department revisions earlier this month revealed that the economy added 911,000 fewer jobs in the year ending March than originally believed.
This means the U.S. created fewer than 71,000 jobs per month over that span, not the 147,000 first reported. Since March, hiring has slowed even further, to just 53,000 new jobs per month.
Economists expect the Labor Department’s next employment report, due October 3, to show only 43,000 jobs added in September. The unemployment rate is forecast to remain at a historically low 4.3%, according to FactSet.
Fed Rate Cuts in Question
In response to the labor slowdown and economic uncertainty, the Federal Reserve cut interest rates last week for the first time since December 2024 and signaled two more cuts could come this year.
However, the stronger-than-expected second-quarter GDP numbers may reduce pressure on the Fed to ease monetary policy further — especially as it continues to monitor inflation closely. All eyes are now on Friday’s release of the Commerce Department’s Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation measure.
Looking Ahead: Slower Q3 Growth Expected
Thursday’s report marked the Commerce Department’s final revision of second-quarter GDP. The initial estimate for third-quarter growth — covering July through September — will be released on October 30.
Forecasters currently expect a slowdown, with Q3 GDP projected to rise just 1.5% annually, according to FactSet data.
You must Register or Login to post a comment.