Economic Growth Surpasses Expectations in Third Quarter

Strong business investment and steady consumer spending were key factors behind unexpectedly high economic growth in the third quarter.

The Commerce Department announced that the gross domestic product (GDP), which measures all produced goods and services, increased at an annual rate of 3.4 percent from July to September. This marked a notable rise from the previous quarter’s growth of 2.2 percent.

Government spending also played a role in this acceleration. However, a significant portion of the increase was influenced by accounting changes linked to reduced oil sales from the Strategic Petroleum Reserve, which didn’t directly affect the overall GDP. Additionally, imports, which decrease GDP, also rose during this period.

Initially, economists had predicted a GDP increase of around 3.1 percent.

When looking at real final sales to private domestic buyers—an indicator of true underlying demand—the figures grew at a rate of 4.9 percent. This is an uptick from the previous quarter’s growth of 4.6 percent and represents the fastest growth pace since the second quarter of 2021.

Consumer spending saw a growth rate of 3.8 percent, which not only matched the previous quarter but also exceeded expectations that had anticipated a 3.5 percent rise.

Private nonresidential fixed investment, a significant aspect of business activity, grew impressively at a 12.7 percent rate, the highest since early 2023. Specifically, investment in business structures increased by 5.4 percent, while investment in business equipment surged at an astounding 20.4 percent, marking the most rapid growth seen since the rebound following the pandemic in mid-2020. This uptick was largely driven by investments in computers and related equipment, possibly reflecting the surge in what has been termed “super intelligence.” Moreover, expenditure on intellectual property, including software, expanded at an 8.4 percent pace.

On the other hand, residential investment saw a decline at a rate of 3.3 percent, indicating struggles within the housing market.

According to the Commerce Department’s inflation gauge, the personal consumption expenditures price index rose by 2.1 percent at a seasonally adjusted annual rate. When focusing on core PCE prices—which exclude food and energy—the increase was recorded at 2.5 percent.

Meanwhile, nominal GDP, which does not factor in inflation, grew at an annualized rate of 5.6 percent.