U.S. economy rebounds a surprisingly strong 3% in Q2


However, the “headline numbers are hiding the economy’s true performance,” analyst says.

The U.S. economy expanded at a surprising 3% annual pace from April through June, bouncing back at least temporarily from a first-quarter drop that reflected disruptions from President Donald Trump’s trade wars.

Still, details of the report suggested that U.S. consumers and businesses are wary about the economic uncertainty arising from Trump’s radical campaign to restructure the American economy by slapping big taxes — tariffs — on imports from around the world.

“Headline numbers are hiding the economy’s true performance, which is slowing as tariffs take a bite out of activity,” Nationwide chief economist Kathy Bostjancic wrote.

America gross domestic product — the nation’s output of goods and services — rebounded after falling at a 0.5% clip from January through March, the Commerce Department reported Wednesday. The first-quarter 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 scrambled to bring in foreign goods ahead of Trump’s tariffs.

The bounceback was expected but its strength was a surprise: Economists had forecast 2% growth from April through June.

From April through June, a drop in imports — the biggest since the Covid outbreak — added more than 5 percentage points to growth. Consumer spending registered lackluster growth of 1.4%, though it was an improvement over the first quarter’s 0.5%.

Private investment fell at a 15.6% annual pace, biggest drop since Covid slammed the economy. A drop in inventories — as businesses worked down goods they’d stockpiled in the first quarter — shaved 3.2 percentage points off second-quarter growth.

A category within the GDP data that measures the economy’s underlying strength weakened in the second quarter, expanding at a 1.2% annual pace, down from 1.9% from January through March and the weakest since the end of 2022. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

Federal government spending and investment fell at a 3.7% annual rate on top of a 4.6% drop in the first quarter.

Wednesday’s GDP report showed inflationary pressure easing in the second quarter. The Federal Reserve’s favored inflation gauge – the personal consumption expenditures, or PCE, price index – rose at an annual rate of 2.1% in the second quarter, down from 3.7% in the first. Stripping out volatile food and energy prices, so-called core PCE inflation rose 2.5%, down from 3.5% in the first quarter.