GDP Revision Shows US Economy Grew More Than Previously Thought in Second Quarter
Key Takeaways
- The U.S. economy grew at an annual rate of 3.8% in the second quarter, rebounding from a 0.6% decline in the first according to revised figures released Thursday.
- The figures were revised upwards due to an increase in consumer spending, indicating the economy is staying resilient in the face of headwinds from tariffs.
- The revised figures suggest the economy stayed resilient amid President Donald Trump’s trade wars, which economists say have slowed down hiring and stoked inflation, at least temporarily.
The output of the U.S. economy as measured by Gross Domestic Product bounced back more than previously thought in the second quarter, powered by an increase in consumer spending.
That’s according to a report from the Bureau of Economic Analysis, which said that GDP grew at an inflation-adjusted annual rate of 3.8% in the second quarter, compared with its previous estimate of 3.3% growth. It was the fastest growth since the third quarter of 2023, and a rebound from the 0.6% decline in GDP in the first quarter. Forecasters had expected growth to stay at 3.3% according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.
The increased estimate was largely due to an upward revision in consumer spending, which rose at a 2.5% annual rate over the quarter, the BEA said.
Why This Matters To You
The upwardly revised GDP figures suggest the economy is in a healthier state than previously thought, which generally boosts household finances and standards of living, all else being equal. However, the GDP figures this year have been distorted by tariffs, so are less of a reliable barometer than usual.
The revised figures suggest the economy is staying resilient amid President Donald Trump’s trade wars, which economists say have slowed down hiring and stoked inflation, at least temporarily, and have made consumers more pessimistic about inflation and the economy according to surveys. Consumer spending is the main engine of economic growth, responsible for 68% of the GDP.
“The big surprise is how strong U.S. consumers continue to be: despite so much uncertainty and an ongoing gloominess in sentiment, consumers keep spending,” Heather Long, chief economist at Navy Federal Credit Union, wrote in a commentary.
However, experts have cautioned the overall GDP is less of a reliable barometer of economic health than usual because of shifts in trade policy. Imports surged in the first quarter as businesses stocked up on inventory in anticipation of tariffs. That tanked the GDP figures because imports are counted against the GDP growth rate. In the second quarter, imports plunged after tariffs went into effect, boosting the GDP on paper.
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“Imports played a large part in the swings in growth this year,” Scott Hoyt, an economist at Moody’s Analytics, wrote in a commentary.
Accounting for the first-quarter dip and second-quarter rebound, the GDP has grown at an annual rate of 1.6% over the first half of the year, below its 2.7% average since 2015.
Thursday’s report was the third and final revision of preliminary figures first released in July.