Newly updated figures released Thursday highlight the continued strength of the U.S. economy, even amid ongoing concerns about inflation and employment trends. According to the Commerce Department’s latest revision, gross domestic product (GDP) grew at an annual rate of 3.8% in the second quarter, surpassing the prior estimate of 3.3% and marking the highest growth since the third quarter of 2024. n nThe upward adjustment was primarily driven by stronger-than-expected consumer spending, which was revised from 1.6% to 2.5%. Despite surveys indicating subdued consumer sentiment, recent data from financial institutions and retail activity suggest households continue to spend at a steady pace. n nLabor market indicators also showed improvement, with both new and continuing claims for unemployment benefits declining over the past week, according to the U.S. Department of Labor. Although the Federal Reserve projected earlier this month that the jobless rate could rise from 4.3% to 4.5% by year-end, the latest figures may ease fears of a sharp downturn in employment. n nAlexandra Brown, North America economist at Capital Economics, noted in a client update that the latest data collectively point to a resilient economy, even as hiring slows. n nHowever, the economic outlook remains complex. The revised GDP reflects activity through June 30, and conditions may have shifted since. A weakening labor market, coupled with former President Donald Trump’s aggressive trade and immigration policies, has raised concerns about uneven growth. While higher-income households continue to drive consumption, lower- and middle-income groups face mounting financial pressure, fueling warnings of a two-tier economic structure. n nThe Federal Reserve’s recent decision to cut interest rates aimed to stimulate growth amid job market concerns, sparking speculation of further reductions. Yet Thursday’s robust data complicate that outlook. When economic indicators signal solid expansion, central banks are less inclined to lower borrowing costs. As a result, investors have scaled back expectations for additional rate cuts in 2025. n nPaul Stanley, chief investment officer at Granite Bay Wealth Management, stated that the revised GDP confirms the economy is advancing healthily, even during a period of heightened trade policy uncertainty. He emphasized that recession risks remain low despite labor market softness. n nNonetheless, growth appears increasingly reliant on a narrow base. Evidence suggests that corporate investments in artificial intelligence are playing an outsized role in sustaining economic momentum, particularly as federal spending declines and trade policies create uncertainty. Commerce Department statistics reveal that equipment investment—covering computers, electronics, and power infrastructure—reached near-historic levels in the first half of 2025. n nGeorge Saravelos, head of research at Deutsche Bank, warned that without tech-driven spending, the U.S. economy could already be in or near a recession. He cautioned that such investment growth, particularly in AI infrastructure like data centers, is unlikely to remain at its current parabolic trajectory, with forecasts suggesting a peak this year. n nSaravelos stressed that for sustained expansion, other sectors must begin contributing more significantly to growth. n
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The U.S. economy grew more than thought in the second quarter n nData released Thursday reflects the resilience of the U.S. economy, even as concerns about the job market and inflation persist. n nU.S. economic growth, or the gross domestic product (GDP), reached 3.8% in the second quarter, according to a fresh revision of the data released Thursday by the Commerce Department. That was higher than the most recent estimate of 3.3% and the strongest reading since the third quarter of 2024. n nThe revision largely reflected stronger growth in consumer spending, which was also revised upward, from 1.6% to 2.5%. Multiple surveys show the mood among consumers remains glum — but Thursday’s spending data, plus other releases from banks, signals they remain willing to maintain their pace of purchasing. n nMeanwhile, new and ongoing claims for unemployment assistance fell over the past week, according to the U.S. Department of Labor. The Federal Reserve said last week it expects the unemployment rate to climb from 4.3% to as much as 4.5% by the end of the year, but the latest data may allay some worries about further deterioration in the job market. n n“The mother lode of data just released suggest the economy is still doing just fine, despite the slowdown in employment growth,” wrote Alexandra Brown, North America economist for the market insight company Capital Economics, in a note to clients. n nThe U.S. economy remains in a relatively precarious position. The latest GDP reading reflects the three months ending June 30, and the growth picture may have changed since then. A slowing labor market combined with President Donald Trump’s combination of aggressive tariffs and immigration enforcement has generated concerns about tepid growth. While consumer spending has remained resilient, there are growing warnings about a two tiered-economy in which lower- and middle-income people are squeezed as upper-income households continue to spend. n nConcerns about the job market spurred the Federal Reserve to take action this month, cutting interest rates in a bid to boost economic growth. There was some anticipation it would be the first of many. n nBut Thursday’s positive economic data complicates the Fed’s situation. n nFollowing the morning’s data releases, investors dialed back the odds of additional cuts by the Federal Reserve this year. The Fed tends to cut when the economy is showing signs of slowing — and the new figures indicate there may be less of a need for lower interest rates to stimulate growth. n n“Thursday’s upward GDP revision for [the] second quarter confirmed that the economy grew at a healthy clip, even as tariff uncertainty reached fever pitch during the quarter,” Paul Stanley, chief investment officer of the Granite Bay Wealth Management financial group, said in a statement. “The U.S. economy is resilient and the strong GDP is another indication that we are not at risk of any kind of recession, even with slowing labor market growth.” n nBut there are also concerns that growth is extremely uneven. n nA growing body of evidence suggests tech companies’ spending on artificial intelligence may almost single-handedly be propping up growth, especially as federal spending cuts and uncertainty over tariffs have clouded sentiment elsewhere. Commerce Department data show that in the first half of 2025, investment growth in equipment — a category that includes computers, electronics and power-supply parts — has been near records. n n“In the absence of tech-related spending, the US would be close to, or in, recession this year,” wrote George Saravelos, a head of research at the Deutsche Bank financial group. n nThat’s not necessarily good news, he said: In order for tech to continue driving GDP growth, investments in AI, like building out data centers, needs to remain “parabolic.” n n“This is highly unlikely,” Saravelos said, given forecasts that such investment will likely peak this year. n n“Other sources of growth will have to take over,” he said.