The U.S. economy expanded at its fastest pace in almost two years during the second quarter of 2025, driven by robust consumer spending, higher business investment, and a sharp narrowing of the trade deficit.
Figures released by the Commerce Department’s Bureau of Economic Analysis on Thursday showed gross domestic product (GDP) grew at an annual rate of 3.8%, an upward revision from the 3.3% previously reported.
This marks the strongest quarterly growth since the third quarter of 2023. Economists had expected no change.
The improvement was largely fueled by a record contraction in the trade deficit, which added 4.83 percentage points to GDP.
Imports fell sharply after businesses had front-loaded shipments earlier in the year to beat tariff hikes, which had pushed the U.S. average tariff rate to its highest level in a century.
The economy had contracted by 0.6% in the first quarter, revised slightly from a 0.5% decline, as the surge in imports weighed on output.
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Consumer spending, which makes up more than two-thirds of the economy, was revised sharply upward, now estimated to have grown at 2.5%, compared with 1.6% earlier. Business investment also strengthened: spending on intellectual property grew at a 15% rate, while equipment investment rose 8.5%.
Final sales to private domestic purchasers—a key measure of underlying demand expanded by 2.9% in the second quarter, up from 1.9% previously reported.
Other data pointed to resilience in the labour market. First-time applications for unemployment benefits dropped by 14,000 to 218,000 for the week ending September 20. Continuing claims also fell slightly, signaling steady hiring even as the jobless rate edged up to 4.3% in August, its highest in nearly four years.
Business demand remained firm, with orders for core capital goods rising 0.6% in August after a strong July performance.
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Despite the strong showing, economists caution that growth may slow in the second half of the year. Trade-related uncertainties and the lingering effects of tariffs are expected to limit expansion, with forecasts pointing to annual GDP growth of about 1.5% in 2025, compared with 2.8% in 2024.
The latest data has also tempered expectations of further interest rate cuts by the Federal Reserve, with analysts suggesting current rates are not holding back growth or the labour market.
Esther Ososanya is an investigative journalist with Pinnacle Daily, reporting across health, business, environment, metro, Fct and crime. Known for her bold, empathetic storytelling, she uncovers hidden truths, challenges broken systems, and gives voice to overlooked Nigerians. Her work drives national conversations and demands accountability one powerful story at a time.
