US economy grows at fastest pace in nearly two years on consumer spending

The U.S. economy grew in the second quarter at the fastest pace in nearly two years as the government revised up its previous estimate of consumer spending.

Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the U.S., increased at a revised 3.8% annualized pace, a Bureau of Economic Analysis report showed Thursday. That was stronger than the previously reported 3.3% advance and followed an outright contraction in the first quarter.

The BEA also issued its annual update of the national economic accounts, which covers GDP and related series in the past five years. While it incorporated newer, more complete source data, the agency said it was “unable to purchase” certain statistics related to tax returns for corporations and sole proprietorships.

The annual revisions were relatively minor as real GDP still increased at an average annual pace of 2.4% from 2019 to 2024. They paint a picture of an economy that quickly rebounded from the initial shock of the pandemic and has since transitioned to period of steadier, trend growth with lingering inflation.

Separate data for the month of August released Thursday showed orders for business equipment increased at a solid clip while the merchandise trade deficit narrowed by more than forecast. Initial applications for unemployment benefits fell to the lowest since mid-July.

The latest quarterly GDP data confirm the economy rebounded in the second quarter after a monumental surge in imports at the start of the year, when companies were racing to stock up ahead of President Donald Trump’s tariffs. The third-quarter economy is also looking solid, with recent reports illustrating resilient consumer spending and business outlays for equipment.

Before Thursday’s figures, the Federal Reserve Bank of Atlanta’s GDPNow estimate penciled in a 3.3% rate of growth in the July-September period. However, economists are less upbeat about growth in the fourth quarter as weaker employment dims prospects for consumer spending.

Economists expect activity to only pick up somewhat in 2026, partly due to Trump’s tax law and lower interest rates, with most forecasters expecting sub-2% growth for the next few years.

The revisions showed the Fed’s preferred inflation metric – the personal consumption expenditures price index, excluding food and energy – rose at faster clip throughout 2024 and was also marked up in the second quarter to 2.6%. Economists expect monthly PCE data, which are due Friday, to show the metric advanced nearly 3% in August from a year ago.

That may limit the extent of Fed interest-rate cuts in the coming months. In lowering borrowing costs last week, policymakers also projected two more reductions this year, though some officials are wary given persistently high inflation.