WASHINGTON — The U.S. economy grew at a 3.4% annual rate in the third quarter, accelerating from 2.2% in the previous three months as consumer spending and business investment in artificial intelligence helped offset a widening trade drag, the Commerce Department reported Thursday.
A credit union economist said the data largely align with what the Federal Reserve said one day earlier in opting not to raise rates.
The advance estimate from the Bureau of Economic Analysis showed stronger growth from July through September than the 3% pace economists had forecast in a FactSet survey, according to The Associated Press. The report is the first of three estimates for the quarter.
Consumer Spending Increases
Consumer spending increased at a 3.8% annual rate, while nonresidential business investment rose 12.7%, according to AP reporting on the government figures. Spending on information-processing equipment surged 37.4%, software investment rose 9.6% and research and development increased 7.5%.
The BEA said higher investment, household spending and government spending contributed to the expansion. Falling exports and rising imports partly offset those gains. Reuters reported Wednesday that imports of capital goods associated with AI infrastructure helped push the goods trade deficit higher in September.
Housing remained a weak point. Residential investment declined 3.3%, according to the AP, amid elevated mortgage rates.
America’s Credit Unions Economist Responds
“Economic growth came in stronger in the third quarter, with consumer spending and investment in AI continuing to be the biggest drivers. Domestic investment grew at its fastest pace since the beginning of last year. However, net exports significantly dragged on overall growth, as imports of goods tied to AI-related investment rose. Looking at September, the personal income and outlays report showed consumer spending slowing after accelerating earlier in the quarter. At the same time, the Fed’s preferred inflation measure rose notably during the month. These reports reinforce the Federal Reserve’s view that the economy remains on solid footing while price stability continues to be a concern,” said Dawit Kebede, senior economist at America’s Credit Unions.
Separate BEA figures released Thursday showed personal income rising 0.2% in September, while consumer spending increased 0.5% in current dollars, down from 0.9% in August. Inflation-adjusted consumer spending was essentially unchanged in September after increasing 0.5% in August.
The personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, increased 0.5% in September and 3.6% from a year earlier, the BEA reported. Excluding food and energy, the index increased 0.3% for the month and 3.1% from a year earlier. Both annual measures remained above the Fed’s 2% inflation target.
The mixed reports underscore the challenge facing policymakers: Economic activity remains robust, but inflation is proving persistent. The BEA is scheduled to publish its second estimate of third-quarter GDP on Nov. 25.
