U.S. economy races ahead with 3.4% growth in third quarter
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The U.S. economy grew at an annualized rate of 3.4% in the third quarter, the Commerce Department said on Thursday.
Why it matters: The economy is entering the final stretch of the year with remarkable momentum despite the Iran war and high energy prices, supercharged by a massive wave of AI investment and strong consumer spending.
By the numbers: The third-quarter growth compares with a 2.2% annualized pace in the second quarter and 2.5% in the first three months of the year.
- The number is stronger than expected: Economists had penciled in growth of roughly 3.2%.
Driving the news: Underlying economic growth, measured by real final sales to private domestic purchasers, rose at a blistering 4.9% annualized pace, accelerating from the 4.6% rate in the previous quarter.
- That measure excludes trade, inventories and government spending, offering a clearer picture of private domestic demand. It was the strongest underlying growth reading in five years.
Zoom in: Consumer spending rose at a strong 3.8% annualized rate, matching the pace in the second quarter and contributing 2.5 percentage points to headline GDP. Spending on health care, restaurants and hotels helped drive the increase.
- Business investment rose at a nearly 13% pace, with equipment spending led by computers and related technology, consistent with the massive AI buildout. It is the strongest reading since 2020 during the pandemic rebound.
- Trade was a substantial drag on growth, subtracting 3.3 percentage points as imports surged and exports declined. The AI boom has helped fuel demand for imported computer chips.
The big picture: The blockbuster GDP report comes just days before the midterm elections, handing President Trump a powerful bragging point ahead of the midterm elections.
- The economy has proved remarkably resilient despite the Iran war and soaring energy prices, though the strength of overall growth may be at odds with Americans' frustrations over the cost of living.
Zoom out: Inflation cooled even as the economy accelerated. The core Personal Consumption Expenditures Price Index, which excludes food and energy, rose at a 2.5% annualized rate last quarter, down from 3.3% in the second quarter.
- The headline PCE price index rose at a 2.1% annualized rate, down sharply from 5% in the previous quarter.
Yes, but: A separate release showed price pressures remained stubborn at the end of the quarter.
- Headline PCE rose 0.5% in September, up from 0.3% in August.
- On an annual basis, PCE accelerated to 3.6% from 3.4%, while core PCE ticked up to 3.1% from 3%.
The bottom line: The data shows the remarkable disconnect at the heart of the American economy.
- Growth is firing on all cylinders — even as high prices continue to weigh on Americans' wallets and sentiment.
Editor's note: This story has been updated with additional details.
