U.S. economy grew 3.4% in third quarter, days before midterms
Commerce Department data shows strong consumer spending and AI investment lifted GDP, while inflation at 3.6% and thin savings leave many households squeezed.
At a glance
- U.S. GDP grew at a 3.4% annual rate from July to September, up from 2.2% in the second quarter, the Commerce Department said.
- Consumer spending and AI data-center investment drove growth, but prices rose 3.6% in September, above the Fed's 2% target.
- The personal saving rate fell to 3.8% in September, and the Fed held rates steady with pressure to raise them in December.
The U.S. economy grew at an annual rate of 3.4% between July and September, the Commerce Department said Thursday, a faster pace than the 2.2% recorded in the second quarter and a sturdy reading delivered just days before the midterm elections.
Consumer spending and heavy investment by AI companies building data centers were the main drivers of growth, according to the report. Spending was led in part by higher-income Americans, who are better able to withstand stubbornly high inflation.
Inflation keeps pressure on households
Prices rose 3.6% in September from a year earlier, above the Federal Reserve's 2% target, and wage growth has fallen behind inflation. The personal saving rate was 3.8% in September, down from 4.1% in August, a separate Commerce Department report showed.
Siri Steven, a manager at a resale store in Decorah, Iowa, said she and her husband are putting off fixing up their more than 130-year-old house. "We barely go out to eat now," she said. "I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft." She said her family has been going paycheck to paycheck and has not been able to save.
Fed holds rates steady
The Federal Reserve decided against raising interest rates on Wednesday. Thursday's reading on prices added pressure on the central bank to raise rates at its next meeting in December.
The report also noted that the ongoing conflict with Iran is driving up energy costs such as gasoline, and that consumer spending has not spread evenly across households, with lower-income Americans struggling more than higher earners.
Economists warn growth is fragile
Mark Zandi, chief economist at Moody's Analytics, said the strong GDP figure masks a delicate picture, because businesses and consumers are navigating Trump administration policies including tariffs and the U.S. war against Iran.
"We're growing," Zandi said. "The economy is moving forward but it's a very, very fragile growth. It doesn't feel like we're kicking it in on all cylinders."
Source: NPR News.
Questions and answers
- How fast did the U.S. economy grow in the third quarter?
- Gross domestic product grew at an annual rate of 3.4% from July through September, up from 2.2% in the second quarter, according to the Commerce Department.
- What is the current U.S. inflation rate?
- Prices rose 3.6% in September from a year earlier, above the Federal Reserve's 2% target. Wage growth has fallen behind inflation, squeezing many households.
- Why do economists call the growth fragile?
- Mark Zandi of Moody's Analytics said businesses and consumers are navigating Trump administration policies such as tariffs and the U.S. war against Iran, and that growth doesn't feel like it is firing on all cylinders.
