Research
August 28, 2025
GDP
U.S. Economy Rebounds in Q2 Amid Trade Shifts and Spending Resilience
The U.S. economy regained momentum in the second quarter of 2025, expanding at a solid pace following a modest contraction earlier in the year. Real gross domestic product (GDP)—the inflation-adjusted value of goods and services produced domestically—grew at an annualized rate of 3.3%, slightly above the initial estimate of 3.0%. This rebound follows a 0.5% decline in the first quarter.
Economic data in the first half of the year were notably volatile. A surge in imports and inventory accumulation in Q1—driven by efforts to get ahead of potential tariffs—was followed by a sharp pullback in Q2, contributing to “noisy” underlying trends. These shifts point to a transition toward a “new normal” in trade, as businesses and consumers adjust to ongoing economic uncertainties.
Despite these headwinds, the National Restaurant Association forecasts continued growth, with real GDP expected to rise at a 1.8% annual rate for the full year. This outlook suggests that the U.S. economy will remain resilient, even as consumer spending is projected to soften in the months ahead.
A closer look at the Q2 data shows that consumer spending provided modest support to growth. Personal consumption expenditures rose at a 1.6% annualized rate, up from a tepid 0.5% gain in Q1. Spending on durable goods and services both rebounded after prior declines, and foodservices and accommodations contributed 0.24 percentage points to overall GDP growth, reflecting a recovery in discretionary spending.
Investment activity presented a mixed picture. Residential investment declined by 4.7%, marking the fourth drop in five quarters and underscoring persistent housing market challenges. In contrast, nonresidential fixed investment rose by a strong 5.7%, fueled by robust gains in key business sectors.
Business spending on equipment jumped 7.4%, continuing a solid upward trend, while investment in intellectual property products surged 12.8%, highlighting the growing importance of innovation. However, spending on structures fell 8.9%, the third decline in four quarters, reflecting ongoing weakness in commercial real estate.
Real final sales to private domestic purchasers—a key measure of underlying demand—rose at a 1.9% annualized rate, matching Q1’s pace but down from 2.9% in Q4 2024. This suggests steady but cautious domestic spending amid evolving economic conditions.
Finally, the most significant contributor to Q2 growth came from net exports. Imports plunged 29.8% after surging 37.9% in Q1, resulting in a substantial boost from trade. Net exports added nearly 5 percentage points to overall GDP growth, reversing the drag seen earlier in the year.
Economic data in the first half of the year were notably volatile. A surge in imports and inventory accumulation in Q1—driven by efforts to get ahead of potential tariffs—was followed by a sharp pullback in Q2, contributing to “noisy” underlying trends. These shifts point to a transition toward a “new normal” in trade, as businesses and consumers adjust to ongoing economic uncertainties.
Despite these headwinds, the National Restaurant Association forecasts continued growth, with real GDP expected to rise at a 1.8% annual rate for the full year. This outlook suggests that the U.S. economy will remain resilient, even as consumer spending is projected to soften in the months ahead.
A closer look at the Q2 data shows that consumer spending provided modest support to growth. Personal consumption expenditures rose at a 1.6% annualized rate, up from a tepid 0.5% gain in Q1. Spending on durable goods and services both rebounded after prior declines, and foodservices and accommodations contributed 0.24 percentage points to overall GDP growth, reflecting a recovery in discretionary spending.
Investment activity presented a mixed picture. Residential investment declined by 4.7%, marking the fourth drop in five quarters and underscoring persistent housing market challenges. In contrast, nonresidential fixed investment rose by a strong 5.7%, fueled by robust gains in key business sectors.
Business spending on equipment jumped 7.4%, continuing a solid upward trend, while investment in intellectual property products surged 12.8%, highlighting the growing importance of innovation. However, spending on structures fell 8.9%, the third decline in four quarters, reflecting ongoing weakness in commercial real estate.
Real final sales to private domestic purchasers—a key measure of underlying demand—rose at a 1.9% annualized rate, matching Q1’s pace but down from 2.9% in Q4 2024. This suggests steady but cautious domestic spending amid evolving economic conditions.
Finally, the most significant contributor to Q2 growth came from net exports. Imports plunged 29.8% after surging 37.9% in Q1, resulting in a substantial boost from trade. Net exports added nearly 5 percentage points to overall GDP growth, reversing the drag seen earlier in the year.
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