U.S. Economy Gains Momentum with 3.3% Growth in Second Quarter

The U.S. economy posted a stronger than expected rebound in the April through June quarter, with gross domestic product (GDP) rising at an annualized rate of 3.3%, according to a revised report from the Commerce Department. This figure improves on the initial estimate of 3.0% growth and exceeds the 3.1% consensus forecast by economists surveyed by Dow Jones. Consumer spending played a significant role in lifting the growth rate higher than anticipated. 

This second quarter bounce comes after the economy shrank by 0.5% in the first quarter of 2025, marking the first quarterly contraction in three years. The downturn earlier this year was mainly caused by a surge in imports as companies hurried to bring in foreign goods ahead of tariffs imposed under President Trump’s trade policies. These import surges, which subtract from GDP, reversed sharply in the second quarter, with imports falling at a nearly 30% annual rate. This shift contributed more than 5 percentage points to the GDP growth in the April-June period. 

Consumer spending, which accounts for about 70% of U.S. GDP, grew by a modest 1.6% annualized pace in the second quarter, surpassing the initial estimate of 1.4% and rebounding from just 0.5% growth in the previous quarter. Although still moderate, this uptick confirmed that households continued to fuel economic activity despite uncertainties around trade and tariffs. 

However, not all areas of the economy showed strength. Private investment declined sharply, slipping 13.8% from the prior quarter, representing the steepest drop since the early phase of the COVID-19 pandemic in 2020. A reduction in private inventories also subtracted about 3.3 percentage points from GDP growth. Additionally, government spending and investment fell again, dropping 4.7% year over year in the second quarter, deepening the contraction seen in the first quarter. 

Despite these mixed signals, a broader measure of the economy’s underlying strength, often used by economists to assess core economic momentum, showed steady growth at a 1.9% annual rate in the quarter. This metric, which aggregates consumer spending and private investment but excludes volatile elements like government spending, inventories, and exports, remained consistent with the pace seen in the first quarter. 

The economic rebound is seen against a backdrop of uncertainty caused by the Trump administration’s aggressive tariff policies. These tariffs, targeting imports from many countries and specific products such as steel, aluminum, and automobiles, have raised costs for businesses and slowed investment decisions. Several major companies, including Caterpillar and General Motors, have reported significant earnings hits due to the tariffs. As a result, the tariffs are viewed by many economists as a factor weighing on growth by increasing expenses and creating unpredictability for manufacturers and retailers. 

On the labor front, the economy shows signs of resilience despite slower growth. Recent data indicates fewer Americans filing new claims for unemployment benefits, suggesting that employers are hesitant to let workers go even as hiring momentum has cooled sharply since spring. Hiring has slowed to much lower levels than a year ago, hinting at a cautious stance among businesses amid the economic headwinds. 

The Commerce Department’s revision to a 3.3% annual growth rate in the second quarter confirms that, while the economy is shaking off the early-year slowdown, challenges persist. The uneven recovery across different sectors reflects the complex effects of tariffs, inventory adjustments, and subdued investment. Economists anticipate that the economy will likely lose steam in the latter half of 2025, with overall growth for the year projected to be around 1.5%, substantially lower than the 1.8% rate considered sustainable by the Federal Reserve. With inflation concerns still present and the labor market softening, the Federal Reserve is reportedly considering a potential interest rate cut at its upcoming policy meeting to support growth without destabilizing prices. 

The U.S. economy found solid footing in the second quarter, powered primarily by consumer spending and a sharp reversal in imports. Yet, persistent declines in investment and government spending, along with ongoing tariff pressures, suggest that maintaining this momentum could be a challenge for the months ahead. Watching how businesses and consumers navigate these headwinds will be critical to understanding the full trajectory of the economy as 2025 progresses.