US economy expanded at a surprising 3.8% pace in significant upgrade of
second quarter growth
[September 26, 2025] By
PAUL WISEMAN
WASHINGTON (AP) — An uptick in consumer spending helped the U.S. economy
expand at a surprising 3.8% from April through June, the government
reported in a dramatic upgrade of its previous estimate of
second-quarter growth.
U.S. gross domestic product — the nation’s output of goods and services
— rebounded in the spring from a 0.6% first-quarter drop caused by
fallout from President Donald Trump’s trade wars, the Commerce
Department said Thursday. The department had previously estimated
second-quarter growth at 3.3%, and forecasters had expected a repeat of
that figure.
The first-quarter GDP drop, the first retreat of the U.S. economy in
three years, was mainly caused by a surge in imports — which are
subtracted from GDP — as businesses hurried to bring in foreign goods
before Trump could impose sweeping taxes on them. That trend reversed as
expected in the second quarter: Imports fell at a 29.3% pace, boosting
April-June growth by more than 5 percentage points.

Consumer spending rose at a 2.5% pace, up from 0.6% in the first quarter
and well above the 1.6% the government previously estimated. Spending on
services advanced at a 2.6% annual pace, more than double the
government's previous estimate of 1.2%.
“The U.S. 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.
A category within the GDP data that measures the economy’s underlying
strength came in stronger than previously reported as well, growing 2.9%
from April-June, up from 1.9% in the first quarter and in the
government's previous estimate. This category includes consumer spending
and private investment, but excludes volatile items like exports,
inventories and government spending.
But private investment fell, including a 5.1% drop in residential
investment. Declining business inventories took more than 3.4 percentage
points off second-quarter growth.
Spending and investment by the federal government fell at a 5.3% annual
pace on top of a 5.6% drop in the first quarter.
Stephen Stanley, chief U.S. economist at Santander, noted that GDP
growth averaged 1.6% in the first half of 2025 and consumer spending
1.5% — "not great but much better than initially thought.''
Since returning to the White House, Trump has overturned decades of U.S.
policy in support of freer trade. He’s slapped double-digit taxes —
tariffs — on imports from almost every country on earth and targeted
specific products for tariffs, too, including steel, aluminum and autos.
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 Trump sees tariffs as a way to
protect American industry, lure factories back to the United States
and to help pay for the massive tax cuts he signed into law July 4.
But mainstream economists — whose views Trump and his advisers
reject — say that his tariffs will damage the economy, raising costs
and making protected U.S. companies less efficient. They note that
tariffs are paid by importers in the United States, who try to pass
along the cost to their customers via higher prices. Therefore,
tariffs can be inflationary — though their impact on prices so far
has been modest.
The unpredictable way that Trump has imposed the tariffs —
announcing and suspending them, then coming up with new ones — has
left businesses bewildered, contributing to a sharp deceleration in
hiring.
From 2021 through 2023, the United States added an impressive
400,000 jobs a month as the economy bounded back from COVID-19
lockdowns. Since then, hiring has stalled, partly because of trade
policy uncertainty and partly because of the lingering effects of 11
interest rate hikes by the Federal Reserve’s inflation fighters in
2022 and 2023.
Labor Department revisions earlier this month showed that the
economy created 911,000 fewer jobs than originally reported in the
year that ended in March. That meant that employers added an average
of fewer than 71,000 new jobs a month over that period, not the
147,000 first reported. Since March, job creation has slowed even
more — to an average 53,000 a month.
On Oct. 3, the Labor Department is expected to report that employers
added just 43,000 jobs in September, though unemployment likely
stayed at a low 4.3%, according to forecasters surveyed by the data
firm FactSet.

Seeking to bolster the job market, the Fed last week cut its
benchmark interest rate for the first time since December and
signaled that it expected two more cuts this year. But the
surprisingly strong second-quarter GDP growth may give the central
bank less reason to cut rates — despite intense pressure from Trump
to do so. Fed officials will be watching even more closely than
unusual when their favorite inflation gauge — the Commerce
Department's personal consumption expenditures (PCE) price index —
comes out Friday.
Thursday’s GDP report was Commerce Department’s third and final look
at second-quarter economic growth. It will release its initial
estimate of July-September growth on Oct. 30.
Forecasters surveyed by the data firm FactSet currently expect the
GDP growth to slow to an annual pace of just 1.5% in the third
quarter.
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