The economy is doing better than “experts” predicted, led by a private-sector comeback that accounts for the entire net increase in economic activity this year. This latest news is from the Bureau of Economic Analysis (BEA), which estimates that the economy grew at an annualized rate of 3.0 percent in the second quarter.
Critics of President Trump initially panned his economic agenda as inflationary and anti-growth, but have thus far been proven wrong. Many of those same critics are now trying to explain away positive economic news, but the facts tell a different story. Here are three reasons why the economy is in the middle of a private-sector comeback.
First, the Trump administration has managed to put the brakes on government spending. The cumulative change in government purchases was slightly negative in the first half of the year, as measured in the BEA’s estimate for gross domestic product (GDP).
That’s a stark contrast to last year, when the Biden administration oversaw a 3.4-percent increase in government purchases, during which time the entire economy grew by only 2.8 percent. “Growth” was coming disproportionately—and unsustainably—from the unproductive public sector’s debt-fueled spending binge.
Fast forward to today, and the entire net increase in economic activity this year has been from the productive private sector, primarily through increases in consumer spending and business investment.
The higher consumer spending figures stem directly from income growth outpacing inflation—a second sign of a private-sector comeback. Real (inflation-adjusted) disposable personal income grew at annualized rates of 2.5 percent in the first three months of this year, and 3.0 percent over the following three months.
Because Americans’ incomes are rising faster than prices, families can purchase more products and services while also saving more. That’s why the savings rate rose to 4.7 percent—the highest level in a year, and up significantly from the 3.8 percent at the end of 2024 or the 3.0 percent average in 2022.
Consumers have clearly been regaining lost ground this year. Critics of Mr. Trump who want to blame his economic agenda for the current cost-of-living crisis are out of touch with the empirical evidence.
The Trump administration is rebalancing the American economy on both the domestic and international fronts by shrinking government at home while negotiating better deals on international trade.
These changes have undoubtedly led to disruptions in the economy which are showing up in the data at the national level. For example, reductions in government purchases directly reduce the economic measurement of GDP, making it appear as if economic activity is shrinking even if the productive private sector is unchanged.
Likewise, the uncertainty surrounding tariffs has caused large fluctuations in imports, which surged in the first three months of this year but then plummeted in the following three months. Businesses rushed to import inventories before April and then sold off those inventories through June.
The changes from the first quarter to the second quarter of this year almost entirely canceled each other out. The change in business inventories added 2.59 percentage points to GDP in the first quarter, then subtracted 3.17 percentage points in the second quarter. Likewise, imports went from subtracting 4.66 percentage points to adding 5.18 percentage points.
Combining the cumulative impacts of international trade and business inventories over the first six months of this year shows almost no net effect, subtracting a mere one-tenth of 1 percent from GDP.
Sifting through all this noise in the data shows the third reason to be bullish about America’s private-sector comeback, a category of economic activity called fixed nonresidential investment. This includes things like factories and equipment, as well as intellectual property like software. It’s the real driver of long-run economic growth.
After falling in the fourth quarter of last year, fixed nonresidential investment grew for both of the last two quarters, averaging a growth rate higher than in 2024 or 2023. People are willing to invest more in business today because they’re increasingly optimistic about private-sector economic growth and their potential return on investment.
Even better, the One Big Beautiful Bill Act just restored full-expensing. This tax provision will lead to even more fixed nonresidential investment, supercharging growth in the second half of this year. America’s future is looking bright in this private-sector comeback.
E.J. Antoni, Ph.D., is Chief Economist and the Richard Aster fellow at the Heritage Foundation and a senior fellow at Unleash Prosperity.
Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.
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