US economy rebounds more than expected — with GDP growing 3% despite tariffs

The US economy expanded at a surprising 3% annual pace from April through June, bouncing back at least temporarily from a President Trump’s trade wars.

Still, details of the report suggested that US consumers and businesses are wary about the economic uncertainty arising from Trump’s radical campaign to restructure the American economy by slapping big taxes — tariffs — on imports from around the world.

“Headline numbers are hiding the economy’s true performance, which is slowing as tariffs take a bite out of activity,” Nationwide chief economist Kathy Bostjancic wrote.

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America gross domestic product — the nation’s output of goods and services — rebounded after falling at a 0.5% clip from January through March, the Commerce Department reported Wednesday. The first-quarter drop, the first retreat of the US economy in three years, was mainly caused by a surge in imports — which are subtracted from GDP — as businesses scrambled to bring in foreign goods ahead of Trump’s tariffs.

The bounceback was expected but its strength was a surprise: Economists had forecast 2% growth from April through June.

From April through June, a drop in imports — the biggest since the COVID-19 outbreak — added more than 5 percentage points to growth. Consumer spending registered lackluster growth of 1.4%, though it was an improvement over the first quarter’s 0.5%.

Private investment fell at a 15.6% annual pace, biggest drop since COVID-19 slammed the economy. A drop in inventories — as businesses worked down goods they’d stockpiled in the first quarter — shaved 3.2 percentage points off second-quarter growth.

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A category within the GDP data that measures the economy’s underlying strength weakened in the second quarter, expanding at a 1.2% annual pace, down from 1.9% from January through March and the weakest since the end of 2022. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

Federal government spending and investment fell at a 3.7% annual rate on top of a 4.6% drop in the first quarter.

Wednesday’s GDP report showed inflationary pressure easing in the second quarter. The Federal Reserve’s favored inflation gauge – the personal consumption expenditures, or PCE, price index – rose at an annual rate of 2.1% in the second quarter, down from 3.7% in the first. Stripping out volatile food and energy prices, so-called core PCE inflation rose 2.5%, down from 3.5% in the first quarter.

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On his Truth Social media platform, Trump heralded the GDP gain and stepped up his pressure on the Federal Reserve to cut interest rates: “2Q GDP JUST OUT: 3%, WAY BETTER THAN EXPECTED! “Too Late” MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!’’

Trump sees tariffs as a way to protect American industry, lure factories back to the United States and help pay for the massive tax cuts he signed into law July 4.

But mainstream economists — viewed with disdain by Trump and his advisers — say that his tariffs will damage the economy, raising costs and making protected US companies less efficient. They note that tariffs are paid by importers in the United States, who try to pass along the cost to their customers via higher prices. Therefore, tariffs can be inflationary — though their impact so far has been modest.