'Thanks to the mighty consumer,' GDP shows more spring in U.S. economic growth

By Jeffry Bartash

Second-quarter growth raised to 3.8%

The broader U.S. economy still appears to be in pretty good shape thanks to American consumers

The Federal Reserve cut interest rates last week because of fresh worries about the jobs market, but the broader U.S. economy still appears to be in pretty good shape thanks to American consumers.

Gross domestic product, the official scorecard of the economy, rose to an annual pace of 3.8% in the second quarter mainly because of a bigger increase in consumer spending than previously reported.

That's the strongest increase in GDP in almost two years and up from the prior estimate of 3.3%.

Consumer spending accounts for about 70% of the economy. In the second quarter, household outlays rose at a 2.5% annual clip, up sharply from a preliminary estimate of 1.4% when second-quarter GDP was first reported nearly two months ago.

"Thanks to the mighty consumer," senior economist Priscilla Thiagamoothy of BMO Capital Markets said, the economy "continues to hold up well."

The latest GDP revision paints a very different picture of the economy during the height of President Donald Trump's trade wars, when the White House raised tariffs to a post-World War II high.

At the time, the assumption was that consumer spending had softened considerably due to angst and uncertainty stemming from the trade wars. Now it appears that Americans mostly went about their business as usual.

How come? For one thing, Americans rushed to buy some goods such as new cars before tariffs led to more price increases.

Yet spending on services, which are largely immune from tariffs, were also much stronger in the second quarter than previously reported. Restaurant spending, a bellwether for the economy, has been particularly robust.

What's going on?

Some economists point to a record stock market that's especially enriched higher-income Americans as a big source of spending. Wealthier people are doing the bulk of the spending as usual, but to an even greater degree now.

Newly revised government data also shows household incomes have risen a lot more in the last year than originally reported, a sign that people have more buying power.

And even though hiring has slowed to a crawl, most Americans feel secure in their jobs. Layoffs remain very low and the unemployment rate is still a paltry 4.3%, well below its modern historical average.

Having a stable job allows people to spend at steady levels.

Of course, Americans also have to spend more because prices are higher. But the GDP report is adjusted for inflation, so consumers are spending at rates significantly above inflation.

The big question is: Can it continue?

Economists are not so confident, but they've misjudged the ability of consumers to spend countless times before.

The GDP report is a "reminder not to bet against the consumer," wrote chief economist Ryan Sweet of Oxford Economics.

-Jeffry Bartash

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09-25-25 1058ET