The U.S. economy showed significant growth in the third quarter, expanding at an annual rate of 4.3%, a notable increase from 3.8% in the prior quarter. This growth exceeds analysts’ expectations, marking the strongest economic performance in two years. The report, which was initially delayed due to a U.S. government shutdown, provides insights into an economy navigating various challenges, including shifts in trade and immigration policies, ongoing inflation, and cuts in government spending.
Despite these challenges, the overall economic momentum remains robust. Aditya Bhave, a senior economist at Bank of America, noted that the economy has consistently exceeded negative predictions since early 2022. “This is an economy that has defied doom and gloom expectations,” he remarked, adding that the resilience is likely to continue.
Key contributors to this growth included a surge in consumer spending, which rose at an annual rate of 3.5%, up from 2.5% in the previous quarter. This increase occurred even amid a slowing job market, with households prioritizing expenditure on healthcare services. Meanwhile, imports continued to decline, largely influenced by tariffs implemented earlier in the year, while exports experienced a substantial rebound, rising by 7.4%.
Government spending also saw a resurgence, particularly due to increased defense outlays, which helped to mitigate a slowdown in business investments and challenges in the housing market caused by elevated interest rates. These factors combined suggest a solid foundation for the economy as it approaches 2026, especially with potential boosts from forthcoming tax cuts and recent decisions by the central bank to lower interest rates.
Former President Donald Trump applauded the economic figures, attributing the favorable outcomes to his tariffs. However, he has faced growing criticism regarding consumer confidence and public sentiment toward his economic management, with polls reflecting dissatisfaction.
Despite this positive growth narrative, caution is warranted. Analysts have expressed concerns that rising prices may hinder the ability to sustain the recent pace of growth. The Fed’s preferred measure of inflation—the personal consumption expenditures price index—rose to 2.8% in the recent quarter, up from 2.1% previously. Experts warn that this inflation could disproportionately affect lower and middle-income households, even as wealthier households continue to spend without restraint.
Oliver Allen, a senior economist at Pantheon Macroeconomics, highlighted signs that households may be curbing their spending. He pointed out that factors such as a weak labor market, stagnant real incomes, and the depletion of excess savings accumulated during the pandemic are beginning to take a toll on household finances. The evolving economic landscape suggests that while growth has been strong, its sustainability may be challenged by emerging financial pressures on consumers.
