The US economy demonstrated surprising strength in the second quarter, outpacing initial estimates and defying concerns over tariff volatility. The Commerce Department reported that gross domestic product (GDP) rose at an annualised rate of 3.3% during the April-to-June period. This figure surpasses both the initial estimate of 3.0% and the Dow Jones consensus forecast of 3.1%, primarily fuelled by robust consumer spending.
Consumer spending experienced an upward revision, growing by 1.6% compared to the initial estimate of 1.4%, contributing significantly to the overall GDP growth. A key indicator closely monitored by Federal Reserve officials, final sales to private domestic purchasers, surged by 1.9%, a notable increase from the previous 1.2%. This metric is considered a crucial gauge of domestic demand and sales, particularly given the uncertainty surrounding President Trump’s tariffs.
The impact of tariffs on trade figures also played a significant role in the GDP calculation. Imports saw a substantial decline of 29.8% during the quarter as businesses stocked up ahead of tariff implementations. Simultaneously, exports decreased by 1.3%. Consequently, net exports contributed almost 5 percentage points to the Q2 GDP total. Looking at the first half of the year, GDP has expanded by approximately 2.1%, averaging just over 1% per quarter. The economy experienced a contraction of 0.5% in the first quarter, largely due to the surge in imports.
According to Heather Long, chief economist at Navy Federal Credit Union, Americans are continuing to spend despite the tariffs and uncertainty, albeit at a slower pace than past years. Current data suggests the economy is growing at a 2.2% pace in the third quarter. Inflation-related estimates remained largely consistent with the initial reading, with core personal consumption expenditures prices rising 2.5%.
