U.S. Economy Surges in Second Quarter, Beating Expectations

by Emmitt Barry, with reporting from Washington D.C. Bureau Staff

WASHINGTON (Worthy News) =  The U.S. economy grew at a faster pace than expected in the second quarter, fueled by stronger consumer spending and a steep drop in imports, according to the Commerce Department’s Bureau of Economic Analysis (BEA).

Gross domestic product (GDP) rose at an annualized 3.8 percent rate from April through June, a sharp upward revision from the initial 3 percent estimate and well above the 3.3 percent consensus forecast. The rebound followed a 0.6 percent contraction in the first quarter, which was revised lower from a 0.5 percent decline.

“GDP is growing at +3.8% in real terms, so despite the elevated inflation we have been living with since COVID, economic growth is exceeding that by a very large margin,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Consumers and Trade Drive Growth

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 2.5 percent in the second quarter–up from just 0.6 percent in the first quarter and far stronger than the earlier 1.6 percent estimate.

Imports fell by more than 29 percent, reversing a 38 percent spike in the first quarter when businesses rushed to stock up on foreign goods ahead of President Donald Trump’s new tariffs. Since GDP only counts domestic production, fewer imports boosted the second-quarter reading. Exports, however, slipped by 1.8 percent.

Government spending edged down for the second straight quarter, with federal expenditures dropping 5.3 percent. State and local government outlays rose by about 3 percent, partially offsetting the decline.

Private industries drove much of the growth, with real value added increasing by 10.2 percent in goods-producing sectors and 3.5 percent in services, more than compensating for a 3.2 percent decline in government output.

Inflation Cools, Jobs Mixed

Price pressures eased somewhat during the quarter. The GDP Price Index rose 2.1 percent, down from 3.6 percent in the prior quarter. Personal Consumption Expenditures (PCE) prices–a key Federal Reserve measure–also increased 2.1 percent, with core PCE inflation, excluding food and energy, running at 2.6 percent.

Labor market data painted a mixed picture. Initial jobless claims fell to 218,000 for the week ending Sept. 20, the lowest in two months, while continuing claims dropped to 1.93 million. Still, overall job growth remains subdued: the economy added just 22,000 new jobs in August, well below expectations.

Federal Reserve Chair Jerome Powell noted that slowing hiring was a key reason behind the Fed’s decision to cut interest rates at its September policy meeting. “They’ve kind of stopped hiring or slowed down their hiring, because they want to see how this all shakes out,” Powell said in remarks this week.

Outlook for the Second Half

Despite the strong rebound, economists warn that volatile trade flows and tariff-related uncertainty could dampen momentum in the second half of the year. Many expect growth to average closer to 1.5 percent for 2025 overall.

Still, the Atlanta Fed’s GDPNow model projects a 3.3 percent expansion in the third quarter, suggesting the economy may continue to outperform in the near term.

Durable goods orders, another key indicator, rose 2.9 percent in August–led by a surge in aircraft and defense equipment–after falling 2.7 percent in July. Excluding transportation, orders rose 0.4 percent.

The next major data point will be the August PCE Price Index, due this week, which will offer further clues on the path of inflation and the Fed’s policy decisions heading into year-end.

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