The US economy grew by 3.4% between July and September compared to the previous year, a much faster annual growth rate than in the second quarter. Consumer spending has been a key driver of growth, even as many Americans continue to struggle with inflation.
Joe Raedle/Getty Images North America
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Joe Raedle/Getty Images North America
The U.S. economy grew faster over the summer than in the spring, driven by consumer spending as well as investments in AI.
Gross domestic product, a broad measure of economic activity, grew at an annual rate of 3.4% from July to September, according to a Commerce Department report released Thursday. In the previous quarter, GDP grew at an annual rate of 2.2%.
One of the main drivers of GDP growth in the third quarter was massive investments by AI companies, which continue to build data centers and spend big money on developing the technology.
At the same time, consumer spending has been another key driver of GDP growth, driven in part by higher-income Americans better able to withstand stubbornly high inflation.
The robust GDP data comes just days before the midterm elections, with many Americans expressing pessimism about the economy as inflation drives up the costs of many daily necessities, while the ongoing conflict with Iran drives up the costs of energy like gasoline.
Even though consumer spending is rising steadily, it is not distributed evenly across households, with lower-income Americans struggling more than higher-earning ones. Wage growth has also lagged behind inflation, further straining many Americans.
Siri Steven, a resale store manager in Decorah, Iowa, says she and her husband are delaying repairs to their more than 130-year-old home.
“We barely go out to eat now,” Steven said. “I really have to watch our budget and make sure we can pay all our bills and not go overdraft.”
She also says her family was unable to save, going from paycheck to paycheck. The U.S. personal savings rate in September was 3.8%, according to a separate Commerce Department report, down from 4.1% in August.
Prices rose 3.6% in September from a year earlier, according to the same report, faster than the Federal Reserve’s 2% target. The Fed closely monitors the Commerce Department’s measure of inflation, particularly when deciding what to do with its benchmark interest rates.
The Fed maintains its rates
The central bank nevertheless decided not to raise rates on Wednesday, with added pressure to raise them at the next meeting in December, after Thursday’s price results.
Economists also worry about the country’s long-term fiscal health. Mark Zandi, chief economist at Moody’s Analytics, warns that despite the strong GDP numbers, economic growth looks tricky. This is because businesses and consumers have to deal with the Trump administration’s policies, such as tariffs and the US war against Iran.
“We’re growing,” Zandi said. “The economy is moving forward but it’s very, very fragile growth. It doesn’t feel like we’re putting it into full gear.”
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