Where Data Tells the Story
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The U.S. economy grew faster than previously reported in Q2 2025 as consumers spent more than expected on services in the three months ended June 30. According to the Bureau of Economic Analysis' third and final estimate of U.S. gross domestic product for the second quarter of 2025, the economy grew at an annualized rate of 3.8 percent during the period, a significant upward revision from the advance estimate of 3.0 percent and the second estimate of 3.3 percent. It is also a sharp reversal from the 0.6-percent contraction in Q1, when tariff front-loading had resulted in a sharp increase in imports, which are a subtraction in the calculation of GDP.
According to the BEA, the upward revision to personal consumption expenditure, which accounts for roughly two thirds of the gross domestic product, more than offset a downward revision to exports and a smaller drop in imports than previously estimated. The results are in line with the latest retail sales reports from the U.S. Census Bureau, which had indicated that Americans continue to spend money, despite the impact of tariffs on prices beginning to show in some categories.
While very strong on paper, it shouldn't be forgotten that the rebound in GDP growth in the second quarter was largely driven by imports dropping sharply as tariffs took effect. On the other hand, private investment declined 13.8 percent, as businesses used up some of the inventory they had built up in Q1 in anticipation of new tariffs. This all goes to show that the current GDP reports are harder to interpret than usual, as the impact of tariffs is still significant. Perhaps the most accurate gauge of where the economy really stands is real final sales to domestic purchasers, the sum of consumer spending and gross private investment. This measure, sometimes referred to as "core GDP" increased 2.9 percent in the second quarter, revised up by a full percentage point from the previous estimate.