The US economy grew more than expected in the third quarter, expanding at an annualized rate of 3.4% over the three months ending in September, according to a government report released on Thursday. This final snapshot of the economy before next Tuesday's midterm elections showed that growth outpaced economists' expectations of 3.1% and accelerated from the 2.2% annualized GDP growth recorded in the previous quarter.
Third Quarter Economic Growth and Spending
The stronger-than-expected US GDP growth was primarily driven by an uptick in consumer spending and an acceleration of investment, the U.S. Commerce Department data noted. Consumer spending, which accounts for about two-thirds of U.S. economic activity, rose at a solid pace during the third quarter even amid a rise in prices.
The performance also outpaced the 2.5% annualized rate recorded over the first three months of the year. However, the report released on Thursday marks an initial estimate, which the agency will revise over the coming months as it assesses additional data. Meanwhile, a jump in spending on artificial intelligence has helped boost the economy in previous quarters as many of the nation's largest companies poured funds into chips and data centers. Conversely, AI likely pushed down the GDP figure because tech firms imported a large number of semiconductors, and the government's GDP formula subtracts imports to exclude foreign production.
Inflation, Interest Rates, and Fed Policy
Economic growth this year has unfolded amid a surge of inflation set off by the Iran war in late February. In response to rising prices, a key long-term Treasury rate jumped in recent months as investors feared price increases would erode their returns, pushing up rates for loans like credit cards and mortgages and threatening a financial crunch.
Despite these headwinds, the economy has proven resilient by some measures. Hiring has continued to grow at a slower pace, and unemployment has stayed at a low level by historical standards. Fed Chair Kevin Warsh, speaking at a press conference in Washington, D.C., on Wednesday, voiced optimism about U.S. economic performance while acknowledging challenges from elevated inflation.
"Economic activity is expanding at a strong pace. While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient," Warsh said.
Prices increased 3.7% in September compared to a year earlier, putting inflation more than a percentage point above the Fed's target level of 2%. The central bank raised interest rates a quarter of a percentage point last month—its first rate increase in three years—before opting to leave rates unchanged on Wednesday. The odds of a quarter-point rate hike at the Fed's December meeting are pegged at about 85% according to CME Group's FedWatch Tool.
"It's our responsibility to get inflation down," Warsh said on Wednesday.
Key Facts About the Economy
- Gross Domestic Product: Expanded at an annualized rate of 3.4% in the third quarter ending in September.
- Economist Expectations: The 3.4% reading exceeded the predicted 3.1% growth.
- Previous Quarters: Outpaced the 2.2% growth in the second quarter and 2.5% in the first quarter.
- Inflation Rate: Reached 3.7% in September compared to a year earlier, remaining above the Fed's 2% target.
- Federal Reserve Action: Left interest rates unchanged on Wednesday after a quarter-point increase last month.
Frequently Asked Questions
What was the US GDP growth rate for the third quarter?
The U.S. economy grew at an annualized rate of 3.4% over the three months ending in September, according to U.S. Commerce Department data.
What caused the surge of inflation this year?
Economic growth and price increases this year have occurred amid a surge of inflation set off by the Iran war in late February.
Did the third quarter GDP growth beat expectations?
Yes, the 3.4% annualized growth rate exceeded economists' expectations of 3.1% and accelerated from 2.2% growth in the previous quarter.