Economy grew 3.4% in the third quarter, the fastest pace in a year

The economy expanded in the third quarter at the fastest pace in a year, supercharged by feverish business investment and a resilient American consumer.

Inflation-adjusted gross domestic product increased an annualized 3.4% in the three months through September after growing 2.2% in the second quarter, according to an initial estimate issued Thursday by the Bureau of Economic Analysis. That exceeded the median projection in a Bloomberg survey of economists.

The world’s largest economy continued to be energized by vibrant business spending, largely tied to investment in artificial intelligence. Outlays for equipment contributed more to gross domestic product in the third quarter than at any time since 2011 outside of the pandemic rebound.

Household spending was similarly robust, increasing an annualized 3.8% for a second straight quarter, even as rising prices erode paychecks and keep consumer sentiment depressed.

“The print shows an economy that’s performing pretty well under the surface,” said Andrew Husby, a senior U.S. economist at BNP Paribas. “The numbers also reinforce that the economy is supported by the AI build-out and the accompanying tailwinds, though it’s not the only thing driving economic growth.”

The report is the last major reading on the health of the U.S. economy before next week’s midterm elections. The results will determine who controls Congress for President Trump’s final two years in office, with many campaigns targeting concerns around affordability and high prices.

Business investment climbed an annualized 12.7%, the most since 2020. Outlays on information processing equipment and software remained strong, but there were also signs of broadening beyond that: Contributions to growth from other categories of investment over the last two quarters were the strongest in three years after a stretch of weakness in 2025 and early 2026.

Net exports subtracted 3.3 percentage points from the calculation of third-quarter GDP, the most since early last year. That likely reflected a mix of factors, including a surge in imports — especially equipment for data centers — as well as efforts to get goods into the U.S. ahead of tariffs and supply-chain disruptions.

Residential investment also continued to be a drag as elevated mortgage rates that recently reached 7.5% restrained homebuying and limited construction activity. Inventories, however, added 1.6 percentage points to growth.

Inflation data

Meanwhile, separate figures from the agency showed inflationary pressures mounted in September. The personal consumption expenditures price index — the Federal Reserve’s preferred measure — rose 0.5% last month, the most since March. Excluding food and energy, the so-called core gauge advanced 0.3%. Both figures matched expectations.

That data also showed real personal spending stalled as the third quarter drew to a close. Inflation-adjusted spending on goods and services was little changed in September after an outsize increase the month before, restrained by a pullback in spending on automobiles and other durables.

Moreover, real disposable income fell for the first time since April, and the saving rate dropped to 3.8%, the lowest since the end of 2022.

“Although consumer spending has been very resilient until now, we expect it to moderate going forward,” said Marc Giannoni, the chief U.S. economist at Barclays Plc. “Even after adjusting for inflation, income growth is not doing much here, and in order to continue to push consumer spending, households have had to dig into savings.”

The Middle East conflict and the Russia-Ukraine war have pushed prices for fuel and other goods higher, weighing on consumer sentiment. The Trump administration’s tariffs also are making some goods more expensive.

Looking ahead, energy costs elevated across the economy risk filtering further into prices of other goods and services.

With the Fed’s preferred inflation gauge at 3.6% as of September, well above the central bank’s 2% goal, investors expect policymakers to raise interest rates at their December meeting. On Wednesday, they kept borrowing costs unchanged.

In a press conference that followed the decision, Fed Chairman Kevin Warsh emphasized the strength of the economy while reiterating policymakers’ commitment to containing inflation.

“While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient,” Warsh said. “Productivity growth is strong, and capital investment robust.”

Meanwhile, companies ranging from banks to restaurants have touted on their earnings calls that consumer spending remains resilient.

“As long as the employment rate stays fairly stable, and it appears to be fairly stable in our country, consumers are going to spend because they have assets,” United Parcel Service Inc. Chief Executive Officer Carol Tomé said on an earnings call this week. But she noted those without assets are stretched.

Still, companies say higher prices are top of mind for many shoppers. Coca-Cola Co. noted that while it expects consumer behavior to remain “largely unchanged,” households across the income distribution continue to prioritize value.

Separate data out Thursday showed initial jobless claims edged lower last week, remaining near the lowest levels since 1969.

Niquette writes for Bloomberg.