The US economy grew at an annualized rate of 3% in the second quarter, outpacing expectations and reversing a surprise contraction in the first three months of the year.
But economists cautioned that the rebound was driven more by a sharp drop in imports than by renewed strength in domestic demand.
Economists had forecast GDP to rise 2.3%, but a significant decline in the trade deficit added five percentage points to GDP, after businesses had frontloaded inventory in the first quarter. Consumer spending, by contrast, rose just 1.4% in the quarter, as tariff-related uncertainty weighed on both households and businesses.
“The second quarter GDP report has a great headline, but details were weaker,” said Bill Adams, Chief Economist at Comerica Bank. “Real final sales to private domestic purchasers (Core GDP) grew at the weakest pace since the fourth quarter of 2022.”
Adams noted that housing was “a notable weak spot” as cautious consumers and high mortgage rates dampened activity. “Residential fixed investment fell 4.6% annualized in the second quarter,” he added.
The report arrives just hours ahead of a Federal Reserve policy decision, where the central bank is expected to hold rates steady. “With the economy growing and adding jobs, and core inflation a bit above target, the Fed will hold rates steady at today’s decision,” said Adams.
The Fed’s preferred inflation gauge, the core PCE index, eased in the second quarter, helped by falling energy prices, but remains slightly above the 2% target. Adams warned that tariffs could stoke inflation in the second half of the year, though recent income tax cuts included in the One Big Beautiful Bill Act (OBBBA) may cushion the blow.
“Now that the OBBBA is law, Fed policymakers may feel comfortable talking more directly about how its stimulative effects will offset the contractionary effect of 2025’s import tax hikes,” Adams said.
Gina Bolvin, president of Bolvin Wealth Management Group, echoed concerns about headline GDP overstating underlying strength. “The 3% GDP growth in Q2 appears strong at first glance, but much of the gain was driven by a decline in imports,” she said. “Measures of underlying demand, like final sales to domestic purchasers, suggest the economy is growing at a slower pace than the headline implies.”
“This report is unlikely to shift the Federal Reserve’s stance,” Bolvin added. “For investors, this reinforces the importance of managing risk and focusing on fundamentals.”
Jeffrey Roach, chief economist at LPL Financial, described the rebound as “temporary,” cautioning that “this should not be construed as an improvement in underlying momentum.” Roach added: “Investors should focus on the deceleration in consumer spending. Now that delinquencies are starting to rise for upper-income consumers, we expect consumer spending to moderate further in the coming quarters.”
Looking ahead, Roach said, “The Fed will likely be in a good place to cut rates by their September meeting.”
Still, some analysts viewed the rebound as a sign of economic resilience. “The significant beat in Q2 GDP is just a rebound from the drop in Q1,” said Jamie Cox, managing partner at Harris Financial Group. “Don’t get me wrong, these GDP data are great, just not that great. The economy remains resilient and growing, and that’s the most important takeaway from this report.”