The third quarter saw faster-than-expected economic growth driven by robust U.S. consumer spending, resulting in the strongest expansion in two years.
The Commerce Department reported on Tuesday that from July to September, the gross domestic product—the total value of goods and services produced throughout the economy—grew at a seasonally and inflation-adjusted annual rate of 4.3%. The report, which depicts the state of the economy prior to the government shutdown, was delayed for almost two months. Nevertheless, the figures provide a glimpse of a thriving economy for the majority of the year.
Consumer spending enables strong US economic growth
Economic growth easily exceeded the 3.2% prediction made by economists surveyed by The Wall Street Journal, having accelerated from a 3.8% rate in the prior quarter. Since the third quarter of 2023, the third-quarter performance was the strongest expansion.
A large portion of the growth was driven by consumers. The cost of healthcare services, such as hospitals, nursing homes, and outpatient care, increased. Additionally, households spent more on goods like software and personal computers, legal services, and international travel. Despite a slowdown in spending compared to the second quarter, businesses contributed to growth through investments related to artificial intelligence. Compared to the previous quarter’s 7.3% increase, overall business investment grew at a rate of 2.8%.
Even though hiring slows, consumer confidence surveys reveal widespread pessimism, and inflation stays above the Federal Reserve’s 2% target, the report reaffirmed evidence that consumers continue to support the U.S. economy. Early in 2025, the Commerce Department will release revised growth estimates for the remainder of 2025 after revising the third-quarter data. “We don’t know if everything is as good as the third-quarter number suggests, but it is sending the message that the economy is hanging in there,” said Jonathan Millar, an economist at Barclays.
Trump credits tariffs for the success
Since President Trump took office again, the economy has grown at an average annual rate of 2.5%, according to new data. This performance includes a decline in the first quarter as businesses scrambled to import goods before new tariffs went into effect. The rate is about the same as the average growth rate of 2.4% that was observed in 2024 under the Biden administration. “The TARIFFS are responsible for the GREAT USA Economic Numbers JUST ANNOUNCED…AND THEY WILL ONLY GET BETTER! Also, NO INFLATION & GREAT NATIONAL SECURITY. Pray for the U.S. Supreme Court!!! President DJT,”
However, the Supreme Court has not yet rendered a decision despite the justices’ skepticism during oral arguments in November that a 1977 law permits Trump’s tariffs.
According to the report released on Tuesday, inflation increased in tandem with growth. Excluding food and energy, prices increased at an annualized rate of 2.9%, up from 2.6% in the previous quarter. The annual rate of consumer spending increased to 3.5%.
Economists discovered flaws at the same time. For the second consecutive quarter, businesses reduced their spending on buildings like factories and office buildings, and residential investment declined at an annual rate of 5.1%. Households with higher incomes drove an increase in spending on services, while consumers reduced their spending on durable goods.
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