Economy Expands at Surprisingly Strong 4.3% Annual Rate
GDP Rises as Inflation Remains Higher Than Federal Reserve Would Like
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WASHINGTON — The U.S. economy expanded at a surprisingly strong 4.3% annual rate in the third quarter, the most rapid expansion in two years, as consumer and government spending, as well as exports, all grew.
U.S. gross domestic product from July through September — the economy’s total output of goods and services — rose from its 3.8% growth rate in the April-June quarter, the Commerce Department said Dec. 23 in a report delayed by the government shutdown. Analysts surveyed by the data firm FactSet forecast growth of 3% in the period.
However, inflation remains higher than the Federal Reserve would like. The Fed’s favored inflation gauge — called the personal consumption expenditures index, or PCE — climbed to a 2.8% annual pace last quarter, up from 2.1% in the second quarter.
Excluding volatile food and energy prices, so-called core PCE inflation was 2.9%, up from 2.6% in the April-June quarter.
Consumer spending, which accounts for about 70% of U.S. economic activity, rose to a 3.5% annual pace last quarter, up from 2.5% in the April-June period.
Q3 GDP growth was strong at +4.3%
AI investment wasn't a big factor in Q3 (like it was earlier in the year).
Consumption is the key driver now. Americans (esp. wealthier Americans) are spending across almost every category (there was some pullback on autos and household… — Heather Long (@byHeatherLong)
Consumption and investment by the government grew by 2.2% in the quarter after contracting 0.1% in the second quarter. The third quarter figure was boosted by increased expenditures at the state and local levels and federal government defense spending.
Private business investment fell 0.3%, led by declines in investment in housing and in nonresidential buildings such as offices and warehouses. However, that decline was much less than the 13.8% dropoff in the second quarter.
Within the GDP data, a category that measures the economy’s underlying strength grew at a 3% annual rate from July through September, up slightly from 2.9% in the second quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.
Source: Bloomberg
Exports grew at an 8.8% rate, while imports, which subtract from GDP, fell another 4.7%.
The Dec. 23 report is the first of three estimates the government will make of GDP growth for the third quarter of the year.
Outside of the first quarter, when the economy shrank for the first time in three years as companies rushed to import goods ahead of President Donald Trump’s tariff rollout, the U.S. economy has continued to expand at a healthy rate. That’s despitemuch higher borrowing ratesthe Fed imposed in 2022 and 2023 in its drive to curb the inflation that surged as the United States bounced back with unexpected strength from the brief but devastating COVID-19 recession of 2020.
Though inflation remains above the Fed’s 2% target, the central bank cut its benchmark lending rate three times in a row to close out 2025, mostly out of concern for a job market that has steadily lost momentum since spring.
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Last week, the government reported that the U.S. economy gained a decent 64,000 jobs in November but lost 105,000 in October. Notably, the unemployment rate rose to 4.6% last month, the highest since 2021.
The country’s labor market has been stuck in a “low hire, low fire” state, economists say, as businesses stand pat due to uncertainty over Trump’s tariffs and the lingering effects of elevated interest rates. Since March, job creation has fallen to an average 35,000 a month, compared to 71,000 in the year ended in March. Fed Chair Jerome Powell has said that he suspects those numbers will be revised even lower.
