US Economy Grows at 3.4% Pace in Third Quarter, Beating Forecasts
US GDP grew at a 3.4% annual rate from July through September, up from 2.2%, as AI-driven investment surged days before the midterm elections.
The US economy grew faster than expected in the third quarter. Gross domestic product, the broadest measure of the goods and services the country produces, rose at a 3.4% annual rate from July through September. That was up from 2.2% in the second quarter, according to the first estimate from the Bureau of Economic Analysis, the Commerce Department agency that compiles the figures. Heavy business spending on artificial intelligence and steady consumer demand drove the gain. The report is the last major look at the economy before the Nov. 3 midterm elections.
What happened
The result topped Wall Street forecasts, though outlets cited slightly different consensus figures. Yahoo Finance said economists had expected 3.1%. InvestingLive, a markets news site, put the median forecast at 3.2% and noted that the Federal Reserve Bank of Atlanta’s GDPNow tracking model had projected 3.3% in its final reading.
The Commerce Department reports quarterly growth as an annualized rate, which shows how fast the economy would expand if the quarter’s pace held for a full year.
Investment was the biggest driver. Yahoo Finance reported that business investment jumped 12.7%, a surge tied to the build-out of data centers and other AI infrastructure. Consumer spending, which makes up roughly 70% of economic activity, grew at a 3.8% rate. That matched the second quarter’s pace and, according to Yahoo Finance, was the strongest since late 2024. Government spending also added to growth.
Trade worked the other way. Exports fell and imports rose, and imports are subtracted when GDP is calculated. InvestingLive’s breakdown of the report put the contributions to the headline figure roughly as follows:
- Total investment, including business spending, housing and inventories: +3.27 percentage points
- Consumer spending: +2.52 points
- Government spending: +0.90 points
- Exports: -0.68 points
- Imports: -2.64 points
Some underlying measures were softer. Real final sales, which strip out swings in business inventories, grew at a 1.7% rate. That was below the 2% forecast and down from 2.8% in the second quarter, InvestingLive reported. The result suggests inventory building did much of the work in the headline number.
Why it matters
The report landed less than a week before voters go to the polls, and the White House quickly cast it as a win. President Donald Trump told reporters before a campaign rally that it had been “a great morning from the standpoint of GDP,” Yahoo Finance reported. The White House posted on X that the data was a “MAJOR BOOST FOR THE ECONOMY.”
Strong headline growth has not fully eased concerns about living costs, however. Inflation data released alongside the GDP report showed the personal consumption expenditures price index, the Fed’s preferred inflation gauge, up 3.6% in September from a year earlier. The core measure, which excludes food and energy, was up 3.1%. Both remain well above the central bank’s 2% target.
Economists pointed to AI as the main engine. Liz Ann Sonders, chief investment strategist at the brokerage Charles Schwab, called it “another strong Q for capex,” meaning capital spending, Yahoo Finance reported. She also noted that the AI build-out depends heavily on imported equipment, which drags on net exports. Heather Long, chief economist at Navy Federal Credit Union, wrote that consumption was still strong but that business investment was “turbocharging” the economy.
Background and what comes next
The economy has gathered speed over the year. In late September, the government revised its second-quarter growth estimate up to 2.2% from 1.5%, the Associated Press reported, after 2.5% growth in the first quarter. The AP said second-quarter imports rose sharply, largely because of shipments of computer chips and other AI-related products. Michael Pearce, chief US economist at the research firm Oxford Economics, told the AP at the time that the economy was increasingly reliant on AI gains and “sensitive to a sudden reversal of optimism on AI.”
Thursday’s figure is only an advance estimate. The Bureau of Economic Analysis will revise it twice in the coming months as more complete data arrive. Policymakers at the Federal Reserve, now led by Chair Kevin Warsh, will weigh the strong growth and sticky inflation as they decide where interest rates go next.
