The economy grew at a 3.8% annual rate in the second quarter of this year, an upward revision of five-tenths of a percentage point, the Bureau of Economic Analysis reported Thursday morning.
The report is the third and final estimate for last quarter’s GDP. The headline number can change during such revisions. The data show that the economy bounced back after a contraction in the first quarter.
The growth in GDP in the second quarter, adjusted for inflation and seasonal variations, was stronger than most economists had expected earlier this year and allays fears about a recession. It also gives President Donald Trump more leeway to pursue his agenda.
The increase in the second quarter was largely because of an increase in consumer spending, as well as a decrease in the number of imports, which are a subtraction in the calculation of 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,” said Heather Long, chief economist at Navy Federal Credit Union. “Consumption was a healthy 2.5% in the second quarter even in the midst of the slumping stock market and all the trade uncertainty. Spending remained healthy on both goods and services.”
The final second-quarter report is a reversal of course from the first quarter of this year, when GDP fell 0.6%.
While the first-quarter decline was largely because of a big surge in imports as businesses rushed to build up inventory ahead of Trump’s tariffs, it nonetheless raised concerns that a recession could be on the horizon.
The revision from the second estimate is largely driven by an upward revision in consumer spending, according to the BEA.
Trump’s aggressive tariff push scared markets, which took a major hit when his “Liberation Day” agenda was launched. Investors feared a trade war that could result in a downturn. But since then, the markets have rebounded, even though Trump has continued to pursue most of the tariffs announced that day.
The economy faces several other threats.
For one, inflation is still too high. The consumer price index, the most closely watched gauge, shows that inflation is clocking in at nearly 3%, above the annual 2% rate the Fed considers healthy.
Perhaps even more concerning, the labor market is starting to soften, and there are indications it has been weaker than was previously thought.
The economy added just 22,000 jobs in August, and the unemployment rate rose to 4.3%. Also, the July jobs report revealed that some 258,000 fewer jobs were added in May and June than previously reported.
RECESSION AND ‘STAGFLATION’ LOOM AS ECONOMIC CONCERNS
Additionally, the government announced that labor market growth for the 12 months ending in March was 911,000 jobs fewer than previously reported.
Last week, the Fed announced it was cutting interest rates for the first time in 2025, in large part because of the indications of a weakening job market.
