The US economy expanded in the second quarter at a slightly faster pace than initially estimated on a pickup in business investment and an outsize boost from trade.
Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased at a 3.3% annualized pace, the second estimate from the Bureau of Economic Analysis showed Thursday. That compared with an initially reported 3% increase.
Business investment expanded at a 5.7% pace after surging in the first quarter. The latest figure was stronger than the 1.9% initially reported and reflected an upward revision to investment in transportation equipment and the strongest advance in intellectual property products in four years.
The turnaround in GDP followed a first-quarter contraction that was the first since 2022 as companies raced to import goods ahead of tariff hikes. Looking forward, the economy is projected to expand at a modest pace as consumers and businesses adjust to President Donald Trump’s trade policy.
The government’s other main gauge of economic activity — gross domestic income — surged 4.8% after a 0.2% annualized advance in the first quarter. Whereas GDP measures spending on goods and services, GDI measures income generated and costs incurred from producing those same goods and services.
The dollar remained lower and two-year Treasury yields edged higher after the GDP data. Traders still largely expect the Federal Reserve to cut interest rates next month.
Corporate Profits
The GDI data include figures on corporate profits, which rose 1.7% in the second quarter after declining in the first three months of the year by the most since 2020. The extent to which American companies choose to raise prices in response to tariffs rather than absorbing the cost has become a key question for the US economic outlook in 2025.
A measure of after-tax profits for nonfinancial firms as a share of gross value added — a proxy for margins — held at 15.7%, well above levels that prevailed from the 1950s to the pandemic.
Net exports added nearly 5 percentage points to GDP, the most on record after weighing on GDP in the first three months of the year. Goods and services that aren’t produced in the US are deducted from the GDP calculation but counted when consumed.
The economy’s primary growth engine — consumer spending — advanced at a 1.6% annualized rate, compared with an initial estimate of 1.4%. In the first quarter, the pace of outlays was the slowest since the start of the pandemic.
Final Sales
Because swings in trade and inventories have distorted overall GDP this year, economists are paying closer attention to final sales to private domestic purchasers, a narrower metric of consumer demand and business investment. This measure rose at a 1.9% pace for a second quarter.
Retailers from Walmart Inc. to Home Depot Inc. are expressing optimism about the resilience of US consumers, even as tariff-fueled price hikes are increasingly starting to show up on store shelves.
The GDP report showed the Fed’s preferred inflation metric — the personal consumption expenditures price index, excluding food and energy — rose at a 2.5% rate in the second quarter, the same as initially estimated. July PCE data are due Friday and will also offer insights into real consumer spending and wage growth at the start of the third quarter.
The Fed has been watching to see whether Trump’s tariffs drive up inflation. Speaking last week at the Fed’s annual conference in Jackson Hole, Wyoming, Chair Jerome Powell said the effects of higher tariffs on prices is “now clearly visible,” but he carefully opened the door to an interest-rate cut in September given the greater risk the job market could falter.
A separate report Thursday showed that recurring jobless claims, a proxy for the number of people receiving unemployment benefits, fell during the week ended Aug. 16. That week is when surveys for the government’s monthly jobs report were conducted. The August employment data are due next week.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
