Image Source: Pexels
 

The United States GDP for the second quarter of 2025 was revised upwards to 3.8% year-on-year in the third and final estimate. This was sharply higher than the 3.3% gain in the second estimate, according to the latest figures from the Bureau of Economic Analysis (BEA).

This easily beat the market estimate of 3.3%. GDP recorded a sharp improvement in the second quarter after a 0.6% decline in the first quarter.

The 3.8% gain marked the fastest pace of expansion since Q3 2023 and was attributable to stronger consumer spending and a decline in imports. Personal consumption expenditures (PCE), which measure consumer spending, climbed 2.5%, much higher than the 1.6% gain in the second estimate, as spending on services jumped to 2.6% vs 1.2% in the second estimate.

Why the US GDP Rate Increased
 

President Trump’s tariffs, which first took effect in April, contributed to the strong GDP. Businesses rushed to beat the tariffs, and imports surged in the first quarter. Imports dropped by around 30% in the second quarter, which boosted GDP.

The strong GDP reading appears to reflect a very strong US economy, but this is not necessarily the case. Both the first and second quarter GDP readings are not an accurate reflection of the economy’s health due to the sharp swings in imports. US trade policy continues to cause significant uncertainty and is likely to curb consumer spending, which has raised concerns that the GDP will fall in the second half of the year. Much will depend on whether the US consumer will continue to defy expectations and remain in a spending mood.

The Federal Reserve lowered interest rates last week for the first time since December in an attempt to boost the labor market, which is showing signs of deterioration. The Fed signaled that it planned to cut rates twice more before the end of the year, but the strong GDP reading means the Fed is under less pressure to aggressively chop rates in the coming months.

Market Reaction – US Dollar Higher, Stock Market Drops
 

In the Forex market, the US dollar is higher against the major currencies in the aftermath of the GDP release. The US dollar has posted small gains against EUR/USD and GBP/USD.

The US Dollar’s sharpest gains have been against the risk currencies, with AUD/USD currency pair down 0.48% and NZD/USD down 0.64% on Thursday.

The US stock market and is showing losses in early trading on Thursday.

The S&P 500 Index is down 22 points (0.33%) at 6,616.

The Nasdaq 100 Index is down 102 points (0.45%) at 22,396.

More By This Author: