The U.S. economy returned to form in the second quarter, growing at a 3.3% annualized pace —a sharp turnaround from the sluggish first quarter, which saw a 0.5% contraction as businesses scrambled to navigate the return of tariffs under President Donald Trump.

Thursday's report from the Bureau of Economic Analysis showed the economy not only grew but also slightly outpaced the initial estimate of 3.1%, boosted by better-than-expected consumer spending and private investment.

That makes it the strongest quarterly expansion since the third quarter of 2023 and a clear sign that economic activity is normalizing after a rocky start to the year.

One of the key drivers of the rebound was a sharp reversal in trade-related distortions. The U.S. trade deficit in goods shrank dramatically to $85.88 billion in June, nearly halving from the March level, when companies rushed to front-load imports before sweeping tariffs announced in April took effect.

The rebalancing helped stabilize GDP after first quarter's figures were dragged down by a record-high trade deficit. Imports, which subtract from GDP calculations, had surged earlier in the year but cooled in the second quarter, allowing domestic demand to shine through.

In a separate release, the Department of Labor reported that initial jobless claims decreased to 229,000 last week, down 5,000 from the previous period and slightly better than expected. Continuing claims also fell to 1.954 million.

Consumers increase spending, businesses return to profits

Real consumer spending rose 1.6%, up from just 0.5% in the first quarter, as Americans continued to support the economy through strong demand for services and durable goods.

The GDP sales component, which strips out inventory changes and trade, jumped 6.8%—a sharp reversal from Q1's 3.1% decline.

Corporate profits increased by 2% to $3.266 trillion, following a 3.3% drop in the previous quarter. Undistributed profits climbed 6.7%, while net cash flow improved by 4.8%, suggesting companies are still rebuilding buffers.

Market reactions

Stock index futures showed modest gains in early trading, with S&P 500 futures up 0.13%, Dow Jones futures rising 0.23% and Nasdaq 100 futures adding 0.16%.

Shares of Nvidia Corp. ( NVDA ) dipped 0.3% in the premarket. The chipmaker delivered stronger-than-expected earnings, yet investors appeared cautious in response to its slightly better-than-forecast guidance.

In the metals market, gold inched up 0.1% to $3,401.62 per troy ounce, while silver advanced 1.1% to $39.01.

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