Surprise pop: US economy sprints at 3.8% in spring as shoppers keep spending

The spring economy turned out to be a lot punchier than anyone thought. Washington’s final read on second-quarter growth shows US GDP rising at a 3.8% annual pace from April through June — a hefty upgrade from the prior 3.3% estimate and a sharp rebound from the 0.6% dip to start the year.

The swing says as much about trade whiplash as it does about resilience. Businesses flooded warehouses with foreign goods in the winter to beat President Donald Trump’s rolling tariff announcements, a front-loading surge that dragged down first-quarter GDP because imports are subtracted in the math. That rush faded in the spring. Imports fell at a 29.3% annual rate, mechanically boosting growth by more than five percentage points and flipping the headline from contraction to expansion.

Underneath that accounting twist, consumers quietly did the heavy lifting. Household spending, the economy’s workhorse, accelerated to a 2.5% annual rate from just 0.6% in the first quarter, a big revision from the government’s earlier 1.6% call. Services led the way at a 2.6% clip, with fresh survey data showing stronger outlays on transportation, finance and insurance. Strip out the noisiest bits — trade, inventories and government — and the core gauge economists love, real final sales to private domestic purchasers, was bumped up a full point to 2.9%. That’s a cleaner read on underlying momentum.

It wasn’t all sunshine. Private investment sagged, including a 5.1% drop in residential outlays, and thinner business inventories sliced more than 3.4 percentage points off the quarter’s growth. Federal spending contracted at a 5.3% annual rate on top of a 5.6% pullback in the first quarter. Even so, the Bureau of Economic Analysis’ industry breakdown showed solid gains in private goods-producing output and steady advances across services, more than offsetting a decline in government value added.

Prices didn’t run away. The broad purchases price index rose at a 2.0% annual rate, while the Fed’s preferred PCE inflation gauge clocked in at 2.1% and 2.6% excluding food and energy — each nudged up a tenth from earlier estimates but hardly a red flag. Real gross domestic income, the income-side twin to GDP, also rose 3.8%, and the average of GDP and GDI matched that pace, giving the upside revision a little more credibility.

If the spring was stronger, the first half still looks middling. Growth averaged 1.6% over the first six months of 2025, with consumer spending up 1.5% on average — “not great but much better than initially thought,” as Santander’s Stephen Stanley put it. The labor market is the sticking point. Hiring has downshifted markedly since the post-pandemic surge, revisions knocked nearly a million jobs off the prior year’s tally, and monthly gains have cooled into the tens of thousands even with unemployment hovering near 4.3%. Weekly jobless claims have eased lately, but the broader trend is softer, and forecasters expect September payrolls to be tepid.

That mix — firmer growth alongside a cooling jobs engine — drops the Federal Reserve into a tricky spot. The central bank cut rates last week for the first time since December and signaled more easing ahead to cushion the slowdown. A blockbuster 3.8% print complicates the case for sprinting toward lower borrowing costs, even as the White House leans hard for faster cuts. Officials will be poring over Friday’s PCE inflation report and the next jobs data to decide whether the economy needs more help or just a steadier hand.

Trade policy, meanwhile, remains the wild card. After decades of backing freer commerce, the administration has layered double-digit levies across a vast swath of imports, while targeting specific goods such as steel, aluminum and autos. Economists caution that tariffs raise costs and blunt competitiveness, and while the inflation hit has been modest so far, the on-again, off-again rollout has clearly scrambled supply decisions and contributed to the hiring slowdown. The first-quarter slump and second-quarter snapback are Exhibit A for how tariff timing can rattle the numbers.

For now, the consumer keeps the lights on. Retail spending has held up better than the gloomier headlines, and services demand is proving sticky even as sentiment wobbles. But the spring sprint won’t necessarily last. Many private forecasters see growth cooling toward a 1.5% annual pace in the third quarter as the import unwind fades, inventories stop subtracting as much, and weaker investment and hiring weigh. The Atlanta Fed’s real-time model has been more upbeat, penciling in something closer to the spring tempo, but that, too, depends on how the jobs, prices and spending data fall over the next few weeks.

The BEA’s third estimate closes the book on the April-June quarter. Next up is the government’s first look at summer activity on October 30. Between now and then, watch whether consumers keep swiping, whether businesses start rebuilding inventories, and whether tariffs keep ricocheting through the data. The headline surprised this time; the path from here will hinge on whether Main Street can outrun policy crosswinds a little longer.

With input from CNN, Axios, BBC, AP, and Bureau of Economic Analysis.