US economy grows 3.4% in third quarter as AI investment and consumer spending lift GDP

Growth beat expectations

The US economy grew at an annualized 3.4% rate from July through September, according to a Commerce Department report released Thursday, 29 October. That is faster than the 2.2% pace of the second quarter and above the roughly 3.2% economists had penciled in. Underlying growth, measured by real final sales to private domestic purchasers, rose at a 4.9% annualized pace, up from 4.6% in the previous quarter. Business investment grew at a near 13% pace, with equipment spending accelerating quickly on the AI boom. Trade subtracted from growth as imports rose, including foreign equipment bought for new AI data centers. The estimate is preliminary and will be revised at least twice.

Q1 20262.5%

Q2 20262.2%

Q3 20263.4%

Q1 2026

2.5 %

Q2 2026

2.2 %

Q3 2026

3.4 %

Data from the article text

Consumers squeezed by prices

Consumer spending grew at a 3.8% annualized rate, matching the second-quarter pace and adding 2.5 percentage points to headline GDP. Higher-income households have carried much of that spending, while lower-income Americans are struggling more and wage growth has fallen behind inflation. Siri Steven, a manager at a resale store in Decorah, Iowa, says she and her husband are putting off repairs to their more than 130-year-old house. She says her family has been unable to save and lives paycheck to paycheck.

“We barely go out to eat now.”

The personal saving rate fell to 3.8% in September from 4.1% in August, according to a separate Commerce Department report. Mark Zandi, chief economist at Moody's Analytics, warns that growth feels delicate despite solid GDP figures.

2026-08

4.1 %

2026-09

3.8 %

Data from the article text

Inflation and the Fed

Prices rose 3.6% in September from a year earlier in one account and 3.7% in another, both faster than the Federal Reserve's 2% target. Consumer prices were up 3.5% in the third quarter from a year earlier, while core PCE rose at a 2.5% annualized rate, down from 3.3% in the second quarter. On Wednesday, 28 October, the Fed left its benchmark rate unchanged, and Fed Chair Kevin Warsh called growth "strong" but labeled inflation "elevated". Warsh told reporters that the economy is heading in the right direction but that inflation remains a problem.

“Real activity is clearly pointing in the right direction. That's good news. But inflation is too high.”

Trade, energy and the midterms

The trade deficit reached nearly $135 billion in September, up more than 2% from August and the highest level in 18 months, the Census Bureau said Wednesday. Gasoline was quoted at $4.22 per gallon, 45% above a year earlier, and diesel at $6.34, 80% higher, as the conflict with Iran pushes up energy costs. Polls show voters blaming President Donald Trump and congressional Republicans for the cost of living, while Republicans hope the growth figures help them keep their congressional majorities in the 3 November election. The Congressional Budget Office estimates the economy is running at a pace it cannot sustain without aggravating inflation. Economists surveyed by Bloomberg News expect growth to slow to around 2.2% in coming months.

What comes next

The Commerce Department's GDP figure is preliminary and will be revised at least twice as statisticians collect more data. The Fed's next decision point is its December meeting, where pressure to raise rates has increased after Thursday's inflation reading. Voters go to the polls on 3 November.