• Analysis
US economy grows faster than expected: GDP up 3.4% in third quarter
The US economy grew at a 3.4% annualized rate in the third quarter, the commerce department's bureau of economic analysis said Thursday in an advance estimate that beat the 3.2% economists had forecast.
Growth beats forecasts
Gross domestic product rose at a 3.4% annualized rate in the third quarter, according to the bureau of economic analysis advance estimate published Thursday - an outcome above the 3.2% consensus in a Reuters poll of economists, whose individual projections ran from 1% to 4.2%.
- •Third-quarter GDP growth: 3.4% annualized
- •Economists' forecast: 3.2%
- •Range of estimates: 1% to 4.2%
What drove the expansion
Consumer spending and AI-driven business investment more than offset higher oil prices tied to the Middle East conflict. Consumer spending, which makes up over two-thirds of the economy, grew at a 3.8% pace in the July-September quarter, matching its second-quarter rate. Historically low layoffs and moderate hiring are underpinning that spending, though wage gains have at times lagged inflation, and households are saving less and drawing down savings to fund purchases. With gasoline prices above $4 a gallon amid the US-Israel war on Iran, economists anticipated a consumer spending slowdown.
Fed rates and the election backdrop
The report arrived less than a week before Tuesday's midterm elections, which will determine control of Congress, and a day after the Federal Reserve left its benchmark interest rate in the 3.75%-4% range while acknowledging inflation "remains elevated". The economy is expanding well above the roughly 2% non-inflationary growth rate some Fed officials consider, and economists expected the central bank to raise rates in December. Fed chairman Kevin Warsh told reporters the picture was one of strength:
"economic activity is expanding at a strong pace."
Questions over the AI effect
The strong figure sits against a downbeat public mood, reflected in Donald Trump's record-low approval ratings and a sharp deterioration in consumer sentiment. Some economists said the growth was probably not a true picture of the economy, since AI-related spending may be distorting it as investors weigh the rising costs and uncertain payoffs of long-term AI projects. Tech firms have borrowed huge sums over the past year for AI spending, a potential downside risk to equipment spending; economists expected that support to weaken, though a full pullback was unlikely.
