WASHINGTON, Sept 25 (Reuters) – The U.S. economy grew at a 3.8% annualized rate in the second quarter of 2025, according to revised data from the Bureau of Economic Analysis, marking the strongest quarterly expansion since late 2023. This upward revision from the earlier estimate of 3.3% was driven by stronger consumer spending and a notable narrowing of the trade deficit. n nThe improvement comes after the economy contracted slightly in the first quarter at a 0.6% rate, a downward revision from the previously reported 0.5% decline. The sharp rebound in Q2 was largely fueled by a drop in imports following a surge in the prior quarter, which reduced the trade deficit and added a record 4.83 percentage points to GDP growth. n nConsumer expenditures, which make up over two-thirds of economic activity, were revised up to a 2.5% growth pace from 1.6%, reflecting sustained household demand. Business investment also showed strength, with equipment spending rising at an 8.5% rate, up from 7.4%, and intellectual property investment growing at 15.0%, compared to the prior estimate of 12.8%. n nFinal sales to domestic private purchasers, a measure of underlying economic momentum excluding trade and inventory fluctuations, advanced at a 2.9% rate, higher than the previously reported 1.9%. This suggests underlying resilience despite policy-related uncertainties. n nHowever, economists caution that the strong headline figure may not reflect sustained momentum. Trade volatility, particularly the front-loading of imports ahead of new tariffs, distorted both quarters’ figures. With trade policy uncertainty lingering, growth in the second half of the year is expected to slow, potentially averaging around 1.5%, bringing full-year expansion to roughly 2.8% in 2024. n nLabor market indicators also showed mixed signals. Initial jobless claims fell by 14,000 to 218,000 in the week ending September 20, below expectations of 235,000. Continuing claims edged down to 1.926 million, suggesting employers are retaining staff. Still, the unemployment rate rose to 4.3% in August, near a four-year high, with weak hiring attributed in part to trade and immigration policies. n nIn another positive sign, core capital goods orders—excluding aircraft and defense—rose 0.6% in August after a 0.8% increase in July, surpassing forecasts of a 0.1% decline. Shipments, however, dipped 0.3% after a prior gain. n nFinancial markets reacted to the data with caution: equities declined, the dollar strengthened, and Treasury yields climbed, as investors reassessed the likelihood of additional Federal Reserve rate cuts. Some analysts argue that the current interest rate level is not restraining economic activity. n n”The labor market remains firm, and the economy is holding steady,” said Christopher Rupkey of FWDBONDS. “If employment growth is softening, it’s not due to broad economic weakness but rather specific policy choices.” n
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US economy grows at fastest pace in nearly two years in second quarter
WASHINGTON, Sept 25 (Reuters) – The U.S. economy grew faster than previously estimated in the second quarter amid strong consumer spending and business investment, though momentum appears to have ebbed against the backdrop of lingering uncertainty from trade policy. n nThe quickest growth pace in nearly two years reported by the Commerce Department on Thursday also reflected a sharp contraction in the trade deficit as the flood of imports slowed. n nSign up here. n nThe economy ‘s resilience was underscored by other data showing strong demand by business for equipment in August and a drop in first-time applications for unemployment benefits last week as companies hoard workers. n nThe data at face value suggested further interest rate cuts from the Federal Reserve were probably unwarranted. Tepid hiring blamed by economists on President Donald Trump ‘s tariffs on imports and an immigration crackdown caused job growth to almost stall in the three months through August, prompting the U.S. central bank to resume cutting rates last week. n n”It is clear that the current level of Fed interest rates is not slowing the economy down and is not hurting the labor market either,” said Christopher Rupkey, chief economist at FWDBONDS. “If job growth is slowing down, it is not the economy that is the problem, it is the Trump 2.0 policies on immigration. The economy is steady as a rock.” n nGross domestic product increased at an upwardly revised 3.8% annualized rate last quarter, the fastest pace since the third quarter of 2023, the Commerce Department ‘s Bureau of Economic Analysis (BEA) said in its third GDP estimate. n nThe economy was previously reported to have grown at a 3.3% pace in the second quarter. Economists polled by Reuters had expected GDP growth would be unrevised. n nThe government revised the national accounts data from the first quarter of 2020 through the first quarter of 2025. The economy contracted at a 0.6% pace in the first quarter, revised slightly down from the previously reported 0.5% pace of decline. n nA sharp contraction in the trade deficit as imports dropped following a record surge in the first quarter was the main driver of a sharp rebound in GDP last quarter. The smaller trade deficit added a record 4.83 percentage points to GDP growth. n nA front-loading of imports as businesses rushed to beat import duties, which boosted the nation ‘s average tariff rate to its highest level in a century, depressed GDP in the January-March quarter. GDP snapped back last quarter as the flow of foreign goods eased. n nTEPID GROWTH IS EXPECTED IN THE SECOND HALF n nBoth the first- and second-quarter GDP readings are not a true reflection of the economy ‘s health because of the wild swings in imports. Economists expect a tepid second half because of the lingering uncertainty from trade policy, which would limit economic growth to about 1.5% for the full year. The economy grew 2.8% in 2024. n nA sharp upward revision to consumer spending, which accounts for more than two-thirds of the economy, accounted for the bulk of the upgrade to GDP last quarter. Spending is now estimated to have increased at a 2.5% pace, revised up from the previously reported 1.6% rate. It increased at a 0.6% rate in the first quarter, a slight raise from the 0.5% pace published last month. n nThere were also upward revisions to business spending on intellectual property products, now estimated to have expanded at a 15.0% rate, rather than the 12.8% estimated last month. n nGrowth in business investment in equipment was revised up to a 8.5% rate from the previously reported 7.4% pace. n nFinal sales to private domestic purchasers, which exclude trade, inventories, and government, and are viewed by economists and policymakers alike as a barometer of underlying economic growth, grew at a 2.9% rate in the second quarter. That was an upward revision to the previously reported 1.9% pace. n nU.S. stocks fell as investors viewed the data as not supportive of further rate cuts. The dollar rose against a basket of currencies. U.S. Treasury yields were higher. n nA separate report from the Labor Department showed initial claims for state unemployment benefits dropped 14,000 to a seasonally adjusted 218,000 for the week ended September 20. Economists had forecast 235,000 claims for the latest week. n nThe number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 2,000 to a seasonally adjusted 1.926 million during the week ending September 13, the claims report showed. n nThe so-called continuing claims covered the period during which the government surveyed households for September ‘s unemployment rate. Continuing claims fell between the August and September survey weeks. The jobless rate increased to a near four-year high of 4.3% in August. n nA third report from the Commerce Department ‘s Census Bureau showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% in August after surging 0.8% in July. n nEconomists had forecast these so-called core capital goods orders dipping 0.1%. Shipments of core capital goods slipped 0.3% after rising 0.6% in July. n nReporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci