The U.S. economy is growing again, helped by trade swings and American consumers who keep spending. There are also signs of caution.

The Commerce Department said U.S. gross domestic product—the value of all goods and services produced across the economy—rose at a seasonally and inflation adjusted 3% annual rate in the second quarter. That is up from a 0.5% contraction in the first quarter.

Taken together, the two quarters show an economy that is growing, but more slowly. GDP grew at an average annual rate of 1.2% in the first six months this year, a step down from the 2.5% average pace in 2024.

Both quarters this year were heavily influenced by swings in trade as businesses tried to navigate tariff threats and trade deals from the White House.

“Businesses are very cautious—they don’t know the road map and so they’re driving in the right lane very slowly,” said U.S. Bank chief economist Beth Ann Bovino.

Consumer spending, the main engine of the U.S. economy, increased at a 1.4% pace in the second quarter, picking up from the first quarter as a steady labor market underpinned households’ spending power. But that growth was offset by weaker business spending on buildings and equipment.

An important measure of economic health showed that combined demand from businesses and consumers softened. That measure, called final sales to private domestic purchasers, rose at a 1.2% rate in the second quarter, down from 1.9% in the prior quarter—its weakest since late 2022. The measure carves out the more volatile government, inventory and international trade data.

Trade alone boosted the second-quarter headline GDP number by nearly 5 percentage points, the most on record going back to 1947, as imports plunged after businesses front-loaded purchases in the first quarter.

The latest GDP reading came before Federal Reserve officials wrapped up their latest policy meeting. They have signaled that they will hold interest rates steady while they see how the economic picture forms. That picture has been at times a confusing one, with economic data pointing in many directions at once.

Contributions to quarterly change in real GDP for select categories

The Trump administration’s trade policies created a large measure of uncertainty for businesses. Consumer spending picked up in the second quarter, but some large companies say they are beginning to detect weakness. The country continues to create jobs, but at a slower pace in the private sector. A new jobs report for July will be released on Friday.

Procter & Gamble, long a bellwether for the health of the U.S. consumer economy, said Tuesday that American shoppers are using up their pantry inventory, delaying purchases and shopping at stores less frequently.

“We really see that the consumer is under some level of stress,” said Andre Schulten, chief financial officer of the maker of Tide detergent, Charmin toilet paper and Pantene shampoo.

The stock market, meanwhile, has boomed, and boosted the wealth of many Americans. The housing sector, hard-hit by high borrowing costs, remained a drag on the economy.

The GDP report underscores the Fed’s cautious approach to lowering rates. Prices excluding volatile food and energy categories rose an annualized 2.5% in the second quarter, cooling from the first quarter but still above the Fed’s 2% target. At the same time, underlying demand has continued to slow.

Consumer spending increased at a 1.4% pace in the second quarter but was offset by weaker business spending.

President Trump welcomed the 3% GDP reading and called for the Fed to lower interest rates in a post on Truth Social: “No Inflation! Let people buy, and refinance, their homes!”

Later this week, the Labor Department will release its jobs report for July. Economists surveyed by The Wall Street Journal expect it will show a cooling in the labor market, with employers adding an estimated 100,000 new jobs, down from 147,000 in June.

The U.S. economy is “growing at a slower pace than it was a year or two ago, but it’s still growing at a solid pace,” said PNC chief economist Gus Faucher. He expects ongoing trade disputes, slower labor-force growth due to restrictions on immigration, and continued high borrowing costs to weigh on the economy in the second half of the year.

Companies reporting earnings are warning of the effect of tariff uncertainty on their businesses. The Trump administration has made tariffs a cornerstone of its economic agenda, saying they will make America richer and bring back manufacturing jobs in the long term. Trump has announced trade deals with Japan, the U.K. and the European Union, but deals with the country’s major trading partners are yet to come, including Mexico, Canada and China.

“The frequently changing outlook for potentially significant additional tariffs has presented a tremendous challenge in planning our business,” Richard Westenberger, chief financial officer of children’s clothing company Carter’s, said on an earnings call last week.

Steven Madden said Wednesday it swung to a second-quarter loss as costs tied to U.S. tariffs weighed on its performance, prompting the fashion footwear company to withdraw its financial guidance for the year.