US economy shows surprising 3.8% growth rate after major revision of Q2 GDP

Consumer spending rose at a 2.5% pace, up from 0.6% in the first quarter and well above the 1.6% the government previously estimated

The US economy expanded at a surprising 3.8 per cent from April through June, the government reported in a dramatic upgrade of its previous estimate of second-quarter growth.

US gross domestic product the nation's output of goods and services rebounded in the spring from a 0.6 per cent first-quarter drop caused by fallout from President Donald Trump's trade wars, the Commerce Department said Thursday. The department had previously estimated second-quarter growth at 3.3 per cent.

The first-quarter GDP drop, the first retreat of the US economy in three years, was mainly caused by a surge in imports which are subtracted from GDP as businesses hurried to bring in foreign goods before Trump could impose sweeping taxes on them. That trend reversed as expected in the second quarter: Imports fell at a 29.3 per cent pace, boosting April-June growth by more than 5 percentage points.

Consumer spending rose at a 2.5 per cent pace, up from 0.6 per cent in the first quarter and well above the 1.6 per cent the government previously estimated.

Since returning to the White House, Trump has overturned decades of US policy in support of freer trade. He's slapped double-digit taxes tariffs on imports from almost every country on earth and targeted specific products for tariffs, too, including steel, aluminum and autos.

Trump sees tariffs as a way to protect American industry, lure factories back to the United States and to help pay for the massive tax cuts he signed into law July 4.

But mainstream economists whose views Trump and his advisers reject say that his tariffs will damage the economy, raising costs and making protected US companies less efficient. They note that tariffs are paid by importers in the United States, who try to pass along the cost to their customers via higher prices. Therefore, tariffs can be inflationary though their impact on prices so far has been modest.

The unpredictable way that Trump has imposed the tariffs announcing and suspending them, then coming up with new ones has left businesses bewildered, contributing to a sharp deceleration in hiring.

From 2021 through 2023, the United States added an impressive 400,000 jobs a month as the economy bounded back from COVID-19 lockdowns. Since then, hiring has stalled, partly because of trade policy uncertainty and partly because of the lingering effects of 11 interest rate hikes by the Federal Reserve's inflation fighters in 2022 and 2023.

Labour Department revisions earlier this month showed that the economy created 911,000 fewer jobs than originally reported in the year that ended in March. That meant that employers added an average of fewer than 71,000 new jobs a month over that period, not the 147,000 first reported. Since March, job creation has slowed even more to an average 53,000 a month.

On October 3, the Labour Department is expected to report that employers added just 43,000 jobs in September, though unemployment likely stayed at a low 4.3 per cent, according to forecasters surveyed by the data firm FactSet.

Seeking to bolster the job market, the Fed last week cut its benchmark interest rate for the first time since December.

Thursday's GDP report was Commerce Department's third and final look at second-quarter economic growth. It will release its initial estimate of July-September growth on October 30.

Forecasters surveyed by the data firm FactSet currently expect the GDP growth to slow to an annual pace of just 1.5 per cent in the third quarter.