The U.S. economy grew at a stronger-than-expected 3% annual rate from April through June, recovering from a first-quarter contraction driven by trade disruptions linked to President

Donald Trump’s tariff policies.

The rebound, reported Wednesday by the Commerce Department, came after the economy shrank by 0.5% in the first three months of the year—the first decline in three years. That earlier drop was largely due to a surge in imports as businesses rushed to stock up on foreign goods ahead of new tariffs.

While the headline figure was robust, economists cautioned that the underlying data reveal persistent fragility.

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

Weak consumer and business spending

Consumer spending, which powers two-thirds of the economy, rose at a modest 1.4% annual pace, an improvement from just 0.5% in the first quarter but still subdued. Private business investment tumbled at a steep 15.6% annual rate—the sharpest drop since the COVID-19 crisis—while a drawdown in inventories subtracted 3.2 percentage points from growth.

Imports, meanwhile, plunged by the most since the early days of the pandemic, boosting overall GDP by more than five percentage points. But analysts say the drop reflects weaker demand, not stronger economic momentum.

A measure of underlying economic strength that excludes volatile components such as trade and inventories grew at just 1.2%, down from 1.9% in the previous quarter and the weakest since late 2022.

Government spending and inflation cool

Federal government spending also weighed on the economy, falling at a 3.7% annual pace following a 4.6% drop in the first quarter.

Inflationary pressures continued to ease. The Federal Reserve’s preferred gauge, the personal consumption expenditures (PCE) price index, rose at a 2.1% annual rate in the second quarter, down from 3.7% in the first. Core PCE, which strips out volatile food and energy prices, slowed to 2.5% from 3.5%.

Trump claims victory, economists remain skeptical

On his Truth Social platform, Trump celebrated the GDP report and again called 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!”

The president argues that tariffs will protect American manufacturers, bring factories back home and help offset the cost of the sweeping tax cuts he signed on July 4.

But most mainstream economists disagree, warning that tariffs raise costs for U.S. businesses and consumers while discouraging efficiency. Tariffs are paid by American importers, who typically pass those costs on in the form of higher prices. So far, the inflationary impact has been moderate, but many economists fear longer-term damage. Photo by Aido2002 at English Wikipedia.