Q2 U.S. GDP Revised Up to 3.8% on Consumer Spending Surge — Evening Brief – 09.25.25
The U.S. economy expanded at a much faster clip than first reported, with the Bureau of Economic Analysis (BEA) revising second-quarter GDP up to 3.83%, the strongest pace since Q3 2023’s 4.7% surge. This marks the third and largest revision for Q2: the advance estimate put growth at 2.96%, followed by a second estimate of 3.29%. The latest data underscores the resilience of household consumption, even as business investment and external trade remain weak.
The breakdown reveals a clearer picture of how the economy held up midyear. Personal consumption was the standout, contributing 1.68 percentage points to headline GDP, nearly half of total growth and sharply higher than the prior estimate of 1.07%. Fixed investment also improved, adding 0.77%, compared with 0.59% previously. Meanwhile, inventories were a major drag, subtracting 3.44%—a deeper hit than the 3.29% reported earlier. Imports declined, boosting net exports on paper, though underlying global demand remained sluggish.
A key measure of domestic demand, real final sales to private domestic purchasers, rose 2.9%, a full percentage point upgrade from the prior estimate. This metric, which strips out trade and inventories, suggests that core U.S. demand was firmer than expected in the spring and early summer.
The inflation backdrop, however, complicates the picture. The Fed’s preferred gauge, core PCE prices (excluding food and energy), was revised up to 2.6% in Q2, highlighting that underlying price pressures remain sticky. Economists expect Friday’s August PCE release to show the index advancing close to 3% year-over-year, keeping the central bank cautious about declaring victory on inflation.
Markets are watching how the Federal Reserve responds. The Atlanta Fed’s GDPNow model projects Q3 growth at 3.3%, but economists are less upbeat for Q4, citing softer payroll growth, an uptick in the unemployment rate, and early signs of household retrenchment.
Looking ahead, many forecasters expect U.S. growth to slow to sub-2% levels in 2026, even with potential tailwinds from lower interest rates and the Trump administration’s tax reform package.