U.S. economy surprises with 4.3% growth rate in third quarter
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The U.S. economy expanded at a 4.3% annualized pace in the third quarter, according to a Commerce Department report Tuesday that had been delayed by the government shutdown.
Why it matters: Despite consumers' low marks on the Trump economy, growth is booming, helped by stronger consumer spending and AI investment.
Zoom out: The third-quarter expansion — the best growth rate in two years — follows the 3.8% annualized pace in the second quarter, after the economy shrank by 0.6% in the first three months of the year.
- Both figures were impacted by the effects of the tariffs.
- At the start of the year, a rush to import goods before tariffs took effect weighed on GDP. The unwind of that activity helped boost growth in the second quarter.
Zoom in: Personal consumption expenditures — a gauge of consumer spending — increased at a 3.5% annualized rate in the third quarter, a percentage point above the previous quarter.
- The AI investment surge came off a high boil relative to growth in the second quarter, but remains upbeat.
- For instance, investment in information processing equipment contributed roughly 0.2 percentage point to overall GDP growth, slightly less than that in the prior quarter.
The intrigue: America's solid economic growth story is confirmed by an underlying measure of growth, which strips out volatile categories like inventory and trade. That gauge rose by 3%, up a tick from the second quarter.
The big picture: The solid GDP figure in the third quarter is at odds with a sluggish labor market that has prompted the Federal Reserve to cut interest rates three times this year.
- Strong growth has typically translated into strong hiring, but that hasn't been the case in recent months. Hiring has been slow, and over the summer, employers shed workers on net.
The bottom line: The economy had momentum heading into the final quarter of the year, a bragging point for the Trump administration that is seeking to sell its economic agenda.
- Yes, but: The GDP report is always backward-looking, but this report is considerably so. Thanks to the government shutdown delay, data from the third quarter comes just days before the end of the fourth quarter.
Editor's note: This story has been updated with additional details.
