U.S. GDP Growth Revised to 3.8% in Q2 as Consumer Spending Surges

The U.S. economy grew at a stronger pace than previously expected in the second quarter, with revised figures showing an annualized 3.8% expansion from April through June, the Commerce Department reported Thursday.

The rebound follows a 0.6% contraction in the first quarter, which marked the first economic decline in three years, largely tied to trade war disruptions under President Donald Trump. Initial government estimates pegged Q2 growth at 3.3%, in line with forecasters’ expectations.

The Q1 drop was fueled by a surge in imports, as companies rushed to bring in foreign goods ahead of new tariffs. That trend reversed in Q2, as imports fell 29.3%, adding more than five percentage points to overall growth.

Consumer spending jumped 2.5% in Q2, compared with 0.6% in Q1 and well above the prior estimate of 1.6%. “American consumers proved far more resilient than many expected, even amid a stock market downturn and trade uncertainty,” wrote Heather Long, chief economist at Navy Federal Credit Union.

A key measure of underlying economic strength — which excludes volatile categories like exports, inventories, and government spending — rose 2.9%, up from 1.9% in Q1 and higher than earlier estimates.

Still, private investment declined, with residential investment down 5.1%. Shrinking business inventories also shaved more than 3.4 percentage points from Q2 growth. Federal government spending dropped at a 5.3% annual pace after a 5.6% decrease in Q1.

Since returning to office, Trump has imposed sweeping tariffs, reversing decades of U.S. free-trade policy. He argues tariffs protect domestic industries, bring manufacturing back home, and help offset his tax cuts signed into law on July 4.

Most mainstream economists disagree, warning that tariffs raise costs and reduce efficiency, since importers in the U.S. ultimately bear the taxes and often pass them along to consumers through higher prices. While inflationary effects have so far been limited, business uncertainty from Trump’s unpredictable tariff strategy has contributed to slower hiring.

From 2021 to 2023, job growth averaged 400,000 per month as the economy rebounded from pandemic shutdowns. Hiring has since cooled, weighed down by trade policy uncertainty and the lagged effects of 11 Federal Reserve rate hikes in 2022 and 2023.

Labor Department revisions this month revealed 911,000 fewer jobs created in the year ending in March than originally reported. Employers added an average of fewer than 71,000 jobs per month, compared with the earlier estimate of 147,000. Since March, job gains have slowed further, averaging just 53,000 per month.

Economists expect the Labor Department to report on Oct. 3 that only 43,000 jobs were added in September, with unemployment likely steady at 4.3%, according to FactSet.

In an effort to support the labor market, the Fed cut its benchmark interest rate last week for the first time since December and signaled two more cuts this year. However, the unexpectedly strong Q2 GDP growth could give policymakers less incentive to ease further, despite political pressure from Trump.

Thursday’s report marked the Commerce Department’s third and final revision for Q2 growth. Its initial estimate for Q3 (July through September) will be released Oct. 30. Analysts surveyed by FactSet project growth to slow sharply to an annual pace of 1.5% in Q3.