US GDP growth tops forecasts in second quarter

The US economy expanded at an annualized rate of 3% in the second quarter of 2025, according to the advance estimate from the Bureau of Economic Analysis, marking a strong rebound from the 0.5% contraction recorded in Q1 and significantly outpacing market expectations of a 2.4% gain.

This sharp turnaround was largely driven by a dramatic 30.3% drop in imports, following a 37.9% spike in the first quarter, when businesses and households accelerated purchases in anticipation of price increases tied to a new wave of tariff announcements.

The steep decline in imports—which subtract from GDP calculations—was the largest since the pandemic recovery period and contributed significantly to the net growth figure.

Consumer spending, the backbone of the US economy, also showed modest strength, rising 1.4% in Q2 versus a sluggish 0.5% in Q1. The uptick was led by a 2.2% increase in spending on goods, particularly durable goods, as households remained cautiously optimistic amid easing inflationary pressures and a resilient labor market.

Still, the back-to-back quarters of tepid consumption growth mark the slowest such stretch since the COVID-19 era, suggesting that consumers may be becoming more selective amid rising credit costs and fading pandemic-era savings buffers.

On the fiscal side, government expenditure posted a modest rebound, increasing 0.4% after a 0.6% decline in Q1, with gains largely concentrated at the state and local levels. However, fixed investment—a key indicator of long-term economic confidence—slowed sharply to just 0.4% from 7.6% in the previous quarter.

The deceleration was broad-based: nonresidential investment in structures plunged by 10.3%, residential investment fell 4.6%, and growth in equipment investment moderated substantially to 4.8% from a stellar 23.7% in Q1. These figures suggest growing caution among firms in committing capital, possibly due to tighter credit conditions and lingering uncertainty around future interest rate paths.

Exports also faltered, falling 1.8%—the largest quarterly decline since Q2 2023—after a marginal 0.4% increase in Q1. The weakening in trade volumes, coupled with the drop in imports, indicates a softening in global demand and potential early signs of trade frictions taking hold. Additionally, private inventories subtracted a significant 3.17 percentage points from GDP growth, as businesses pared down excess stockpiles built up in the prior quarter.

Overall, while the headline growth figure suggests a strong rebound, the underlying components paint a more nuanced picture of an economy navigating shifting trade dynamics, cautious investment sentiment, and increasingly constrained household spending.