US springs a surprise: Economy expands 3.8% on consumer spending

The U.S. economy grew faster than previously thought in the second quarter, pumped up by an ebb in imports and a pickup in consumer spending, but momentum appears to have since slowed. Gross domestic product increased at an upwardly revised 3.8% annualized rate last quarter, the Commerce Department's Bureau of Economic Analysis (BEA) said in its third GDP estimate on Thursday. The economy was initially reported to have grown at a 3.3% pace in the second quarter.

Economists polled by Reuters had expected GDP growth would be unrevised at a 3.3% rate. Growth last quarter was also supported by businesses boosting investment in intellectual property products, mostly artificial intelligence. The government revised the national accounts data from the first quarter of 2020 through the first quarter of 2025. The economy contracted at a 0.6% pace in the first quarter, revised slightly down from the previously reported 0.5% pace of decline. A front-loading of imports as businesses rushed to beat President Donald Trump's sweeping import duties, which boosted the nation's average tariff rate to its highest level in a century, depressed GDP in the January-March quarter. GDP snapped back last quarter as the flow of foreign goods eased.

Both the first- and second-quarter GDP readings are not a true reflection of the economy's health because of the wild swings in imports. Economists expect a tepid second half because of the lingering uncertainty from trade policy, which would limit economic growth to about 1.5% for the full year. When measured from the income side, the economy grew at a downwardly revised 3.8% rate in the second quarter. Gross domestic income (GDI) was initially estimated to have increased at a 4.8% pace. GDI grew at a 1.0% rate in the first quarter, revised up from the previously reported 0.2% pace. The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, grew at a 3.8% rate. That was slight downgrade from the 4.0% pace estimated last month. Gross domestic output grew at a 0.2% rate in the first quarter rather than contracting at a 0.1% pace as reported last month.