U.S. economy posts strongest growth in nearly two years as GDP revised higher

The Commerce Department on Thursday revised its estimate of second-quarter growth to an annualized 3.8 percent, up from the earlier 3.0 percent. The revision paints a more resilient picture for the U.S. economy, driven in part by a stronger pace of consumer spending and a reversal in import trends that had weighed on growth earlier in the year.

Personal consumption expenditures rose at a 2.5 percent annual rate in the April-to-June period, up from 0.6 percent in the first quarter and above the 1.6 percent previously estimated. Imports, which subtract from GDP, fell 29.3 percent in the second quarter, reversing the earlier surge as businesses sought foreign goods before tariffs were put in place. The decline in imports added more than five percentage points to growth. The economy had contracted 0.6 percent in the first quarter, marking the first red quarter in three years.

Economists expect momentum to carry into the next quarter, with the Federal Reserve Bank of Atlanta projecting GDP around a 3.3 percent pace for the third quarter. Analysts described the revision as signaling ongoing resilience among consumers and households, while some underlying measures showed fissures. Gross domestic income was revised lower by about 0.1 percent, and weakness was concentrated in corporate profits, according to Oxford Economics.

Since returning to the White House, President Trump has pursued a protectionist trade approach, imposing tariffs on a broad range of imports and targeting specific products such as steel, aluminum, and cars. Proponents say tariffs protect domestic industry and help fund tax cuts, but many mainstream economists warn that tariffs can raise costs for businesses and consumers and may be inflationary over time. They also point to the uncertain and evolving way tariffs have been implemented as a factor that can weigh on hiring and investment.

The labor market and broader policy context remain in focus. Earlier this month, the Labor Department revised down the number of jobs created in the year ending March by about 911,000, meaning average monthly gains were smaller than previously reported. Since March, job creation has slowed further, averaging roughly 53,000 per month. Forecasters surveyed by FactSet expect September payrolls to rise by about 43,000, with the unemployment rate hovering near 4.3 percent. In response to softer labor conditions and inflation pressures, the Federal Reserve cut its benchmark interest rate last week for the first time since December. The Commerce Department will issue its initial estimate of July-September growth on Oct. 30, and forecasters expect the pace to slow to around 1.5 percent in the third quarter.

For investors and policymakers, the latest GDP revision underscores a mixed picture: a still-resilient consumer and generally solid output point to a capable economy, but a tariff-driven policy environment and evolving labor-market dynamics continue to pose headwinds. Officials will watch incoming data closely as they balance the risk of renewed inflation against the goal of sustaining growth in a higher-rate world.