GDP: Third-quarter growth hits 3.4%

The Bureau of Economic Analysis reported Thursday that the US economy expanded at a 3.4% annualized rate in the third quarter. This advance estimate from the Commerce Department exceeded the 3.2% pace predicted by economists polled by Reuters. The figures arrived less than a week before the midterm elections, setting the stage for political debates over the state of the nation’s finances.

Resilient consumer spending and heavy investment in artificial intelligence powered the growth. These factors offset the drag from rising oil prices linked to the ongoing conflict in the Middle East. Consumer spending, which makes up more than two-thirds of economic activity, increased at a 3.8% annual rate in the July through September period. This matched the growth rate seen in the second quarter of the year.

Kevin Warsh, the Federal Reserve chairman, commented on the data after the central bank held its benchmark interest rate steady in the 3.75% to 4% range on Wednesday. Warsh told reporters that economic activity is expanding at a strong pace. He noted that domestic spending has remained resilient, even as geopolitical uncertainty persists. The Fed acknowledged that inflation remains elevated, though officials had previously suggested the current growth rate exceeds the non-inflationary benchmark of about 2%.

Market observers had projected a wide range of outcomes, with estimates spanning from 1% to 4.2% growth. The actual figure landed near the upper end of that spectrum. This performance contrasts sharply with recent consumer sentiment surveys and President Donald Trump’s approval ratings, both of which have shown a sharp decline. The discrepancy between the headline number and household perception is a focal point for voters heading to the polls on Tuesday.

Some economists caution that the strong growth figures may not reflect the broader health of the economy. They point to the increasing dominance of AI-related spending as a primary driver. Tech firms have borrowed large sums over the past year to fund these projects, creating a potential downside risk if equipment spending slows. Investors are watching the rising costs of long-term AI initiatives, where returns remain uncertain.

Households continue to support this spending but are changing their financial habits. Average gasoline prices remain above $4 a gallon as the war with Iran continues, squeezing budgets. Consumers are saving less and tapping into existing savings to maintain their spending levels. Wage gains have at times lagged behind inflation, though historically low layoffs and moderate hiring have kept unemployment pressures in check. The data suggests the spending engine is still running, but it is drawing on reserves rather than new income.

The next GDP release will likely face scrutiny over the sustainability of the current trajectory. For now, the numbers provide a strong headline for policymakers heading into the election period. The report confirms that the third quarter closed with a pace of expansion that outperformed most professional forecasts.