US economy expanded at surprising 3.8% pace in second quarter — what's driving the growth spurt?

Increased consumer spending in the US has uplifted its economy as it expanded at a surprising 3.8% from April through June, defying the stock market sell-off and trade uncertainties which were projected to weigh down the country’s second-quarter growth.

The US gross domestic product (GDP) recovered in the spring from a 0.6% first-quarter drop caused by fallout from President Donald Trump’s trade wars. The Commerce Department said on Thursday that it had previously estimated second-quarter growth at 3.3%, and forecasters had expected a repeat of that figure, AP reported.

“The US consumer remained a lot stronger than many thought, even in the midst of a stock market sell-off and a lot of trade uncertainty,” Heather Long, chief economist at Navy Federal Credit Union, posted on social media.

Key drivers of economic growth

The first-quarter GDP drop, which was the first economic retreat of the US economy in three years, was driven by a surge in imports as businesses rushed in to get foreign goods before new tariffs were imposed on them. Here’s a breakdown of the second quarter’s performance:

• Consumer spending: The biggest factor was a 2.5% increase in consumer spending, a major jump from 0.6% in the first quarter. Spending on services, in particular, more than doubled previous estimates of 1.2%.
• Declining imports: A trend reversal in the second quarter boosted April-June growth by more than 5 percentage points as imports fell at a 29.3% pace.
• Underlying economic strength: A section within GDP data that measures the economy’s underlying health grew better than expected at 2.9% from April-June, up from 1.9% in the first quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.

Economic headwinds

Despite the strong GDP numbers, some parts of the economy showed weakness:

• Private investment: This sector declined, with residential investment falling by 5.1%.
• Business inventories: A decline in business inventories took more than 3.4 percentage points off second-quarter growth.
• Federal government spending: Spending and investment by federal government fell at a 5.3% annual pace on top of a 5.6% drop in the first quarter.

Trump tariffs impact

Since Trump returned to the White House, he has overturned decades of US policy which supported freer trade. He imposed double-digit tariffs on imports from almost every country, targeting specific products too, such as steel, aluminum and autos, AP reported.

His rationale is that this move will protect American industry, lure factories back to the United States and help pay for the massive tax cuts he signed into law on July 4, 2025.

However, mainstream economists slammed this move, warning that the sweeping tariffs will not only damage the US economy but also raise costs as the importers in the US will try to pass along the cost to their customers. Therefore, tariffs can be inflationary, though their impact on prices so far has been modest.

Labour market slowdown

The robust GDP figures contrast with a significant slowdown in the job market, which is being impacted by both Trump administration’s trade policy and previous federal reserve actions.

The unpredictable and sudden nature of Trump tariffs has left businesses bewildered, contributing to a sharp decline in hiring.

The Labor Department report released earlier this month showed that the economy created 911,000 fewer jobs than originally reported in the year that ended in March. Since March, job creation has slowed even more, reaching an average of 53,000 a month, AP noted.

The latest GDP report released on Thursday, September 25 was Commerce Department’s third and final look at second-quarter economic growth. It will release its initial estimate of July-September growth on October 30, 2025, AP said in a news report.