Stronger Consumer Activity and Lower Imports Fuel Growth
The U.S. economy outperformed expectations in the second quarter, with gross domestic product rising 3% from April to June, according to the Commerce Department. The figure, adjusted for inflation and seasonal trends, exceeded the Dow Jones estimate of 2.3% and marked a sharp recovery from the first-quarter decline of 0.5%.
This growth was driven largely by a massive 30.3% drop in imports, which subtract from GDP, and a rebound in consumer spending, which climbed 1.4% after a sluggish 0.5% gain in the previous period. The report comes amid ongoing trade tensions and new tariffs announced by President Trump during the quarter.
Trade Policies Shape Economic Trajectory
The second quarter coincided with Trump’s April 2 announcement of new tariffs, which led to a rush of imports in Q1 followed by a steep decline in Q2. While exports dipped 1.8%, the larger collapse in imports helped lift overall GDP. Economists note that this reversal in trade dynamics was instrumental in producing the strong headline figure.
Trump’s aggressive trade stance has stirred both optimism and anxiety. While markets remained steady after the report, some experts warn that elevated tariffs could lead to rising prices and future slowdowns if not accompanied by broader deals. Still, economic growth has persisted through the uncertainty, showcasing the economy’s resilience.
Inflation Eases, But Fed Holds Rates
The inflation landscape showed signs of moderation. The Fed’s preferred inflation metric — the personal consumption expenditures (PCE) index — rose 2.1%, near the 2% target. Core PCE, which excludes food and energy, slowed to 2.5% from 3.5% the previous quarter, suggesting progress in controlling price pressures.
Despite the improved inflation outlook, the Federal Reserve is expected to maintain its key interest rate in the 4.25%-4.5% range as it continues to assess broader economic trends. Trump responded to the GDP report by calling for immediate rate cuts to support refinancing and home purchases, arguing that inflation no longer justifies high rates.
Mixed Signals Ahead
Not all indicators were positive. Final sales to private domestic purchasers — a key measure of underlying demand — grew just 1.2%, the slowest pace since late 2022. Residential investment also contracted by 4.6%, continuing the housing sector’s struggle under high mortgage rates. Government spending was not a growth driver either, with federal outlays falling 3.7% in the quarter.
While the 3% GDP gain points to economic strength, much of it was supported by a temporary trade shift. Economists caution that unless domestic demand strengthens and exports recover, future quarters may not replicate this pace.
