WASHINGTON (AP) — The US economy witnessed a significant growth of 3.8% between April and June, buoyed by increased consumer spending, according to a recent report which revised previous estimates substantially.
The Gross Domestic Product (GDP) of the United States rebounded in the spring, recovering from a 0.6% decline in the first quarter attributed to the ramifications of President Donald Trump’s trade policies, the Commerce Department shared on Thursday. Earlier, the expected growth for the second quarter was pegged at 3.3%, so this revision caught many off guard.
The downturn in the first quarter, marking the first contraction of the economy in three years, was largely because of a spike in imports, which were subtracted from the GDP as Trump accelerated the import of goods before imposing a cleaning tax on them. However, that trend saw a reversal in the following quarter, with imports dropping sharply by 29.3% and contributing to growth exceeding 5 percentage points.
Consumer spending climbed to a rate of 2.5%, up from 0.6% in the first quarter, surpassing previous government estimates that were notably above 1.6%.
“U.S. consumers proved to be more resilient than many anticipated, even amid stock market fluctuations and various trade uncertainties,” noted Heather Long, chief economist for the Navy Federal Credit Union, via social media.
The underlying sectors within the GDP data showed greater strength than earlier reported, increasing by 2.9% from April to June and revising the first quarter’s growth from 1.9%. This segment, which includes consumer spending and private investment, does not account for less stable components such as exports, inventories, and government expenditures.
On the flip side, private investments saw a decline, particularly with a 5.1% drop in housing investment. The reduction in business inventories accounted for more than 3.4 percentage points of the growth in the second quarter.
Federal spending and investment experienced a notable decline of 5.3% annually, following a 5.6% decrease in the first quarter.
Since assuming office, Trump has altered longstanding US policies regarding freer trade, imposing substantial tariffs on imports from nearly all countries and specifically targeting products such as steel, aluminum, and automobiles.
Trump advocates these tariffs as a means to fortify American industry, attract manufacturing to the US, and help offset the major tax cuts implemented on July 4th.
In contrast, many mainstream economists, a perspective that Trump and his advisors tend to dismiss, argue that these tariffs are detrimental to the economy. They believe tariffs escalate costs and, while intended to shield US businesses, paradoxically make them less efficient. It’s noted that the costs of tariffs are typically absorbed by US importers, which usually translates into higher prices for consumers, although the inflationary impact has been relatively modest so far.
The often erratic imposition of tariffs by Trump—whether introducing them, pausing them, or announcing new ones—has left businesses confused and has contributed to significant economic slowdowns.
From 2021 to 2023, the US had a strong job market with about 400,000 new jobs created monthly as the economy rebounded from pandemic-induced lockdowns. Yet, job growth has decelerated recently due to uncertainties stemming from trade policies and the ongoing effects of 11 interest rate hikes implemented by the Federal Reserve to combat inflation in 2022 and 2023.
A recent revision from the Labor Bureau indicated that the economy added 911,000 fewer jobs than initially reported in the year ending March, which translates to an average job addition of less than 71,000 per month, instead of the previously reported 147,000. Since March, the pace of job creation has slowed further, averaging about 53,000 jobs monthly.
Looking ahead, the Labor Bureau is expected to report that September saw only 43,000 new jobs added, while the unemployment rate is projected to be around 4.3% lower, according to forecasts from data firm Factset.
To bolster the job market, the Federal Reserve recently cut benchmark interest rates for the first time since December and indicates further cuts may follow this year. However, the surprisingly robust GDP growth for the second quarter could lessen the incentive to lower rates, even amidst strong pressure from Trump.
Thursday’s update on GDP marks the Commerce Department’s third take on the economic growth for the second quarter, with an initial estimate for growth from July to September set to be released on October 30th.
Current projections from Factset anticipate that GDP growth may slow to just 1.5% in the third quarter.
