The US economy expanded faster than anticipated during the third quarter, with gross domestic product increasing at a 3.4% annualized rate according to data released Thursday by the commerce department’s bureau of economic analysis. This outpaced economist forecasts of 3.2% growth, with estimates having ranged from 1% to 4.2%.
The expansion has been supported by strong consumer spending and business investment tied to artificial intelligence development, which have offset headwinds from elevated oil prices resulting from Middle East geopolitical tensions. Consumer spending alone grew at a 3.8% pace during the July-September quarter, representing more than two-thirds of overall economic activity. Employment conditions have remained relatively stable, with historically low layoff rates and moderate hiring supporting household spending capacity.
However, economic data on price increases presents a contrasting picture. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, showed prices climbing 0.5% in September with an annualized rate reaching 3.6%, up from 3.4% in August. Core inflation, excluding food and energy, rose to 3.1% on an annualized basis. The consumer price index, tracked separately by the Department of Labor, indicated even higher inflation at 3.7% for September, up from 3.4% in August.
The Federal Reserve maintained its benchmark interest rate in the 3.75%-4% range on Wednesday while acknowledging that inflation remains elevated. Fed Chair Kevin Warsh noted that economic activity is expanding at a strong pace despite geopolitical uncertainties, while economists widely expect the central bank to raise rates in December. Some analysts questioned whether the robust GDP growth accurately reflects underlying economic health, pointing to concentrated gains in AI-related spending and noting that households have been reducing savings and depleting personal reserves to sustain consumption levels amid higher gasoline and grocery prices.
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