GDP report is a much-needed vote of confidence for the economy
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Hot, hot, hot: That might be the most succinct way to describe the U.S. economy in the third quarter.
Why it matters: Economic activity expanded at a blistering 4.3% annualized pace in the July-through-September quarter, even better than the already-strong growth analysts had penciled in.
- While the data is even older than usual, thanks to the government shutdown — it shows what happened in Q3, days from the end of Q4 — it is a reassuring vote of confidence for the economy at a time when consumer sentiment is near record lows and employers tap the brakes on hiring.
- It points to an economy in which economic output is growing much faster than the job market, implying surging productivity growth.
What they're saying: "The data are backward looking but underscore that the economy had weathered the increased tariffs and slowing employment growth quite well," Nationwide chief economist Kathy Bostjancic wrote in a note.
The big picture: Q3 GDP was not jolted primarily by an AI-related investment surge. Rather, good, old-fashioned consumer spending powered the growth, defying a slowdown that appeared to take root in early 2025.
By the numbers: Personal consumption expenditures increased at a 3.5% annualized rate in the third quarter, stronger than the 1.6% average in the first half of the year.
- Spending on services — health care, housing and more — contributed 1.7 percentage points to the headline GDP growth, more than a full percentage point above the contribution from goods spending.
Zoom in: The solid economic growth and the spending pickup are even more surprising, considering the weaker jobs growth over the same period.
- It's a sign that strong economic growth is not translating into more robust hiring. And the flip side is that consumers keep spending despite the persistent economic worries in sentiment surveys.
- The economy added an average of just 52,000 jobs per month in the third quarter, weaker relative to the average gain of 111,000 per month in the January-March period.
Even so, a measure of underlying economic growth continued to trend up.
- Final sales to private domestic purchasers, which sums up consumer spending and business investment, rose at a 3% annualized rate, up from 1.9% and 2.9% in the first and second quarters, respectively.
The intrigue: In a social media post after the initial numbers came out, President Trump attributed the "GREAT USA Economic Numbers" to his trade agenda.
- Trade dynamics did boost the economy in the third quarter, a steadying of wildly volatile data as businesses rushed to stockpile goods ahead of tariff policies. Net exports added 1.6 percentage points to headline GDP last quarter after adding almost 5 percentage points in the second quarter (and weighing on the headline figure by nearly just as much in the first quarter).
- Still, there is no evidence that U.S. manufacturers, for instance, are sending more goods overseas as a result of Trump's policies. Exports rose at a roughly 9% annualized rate after shrinking the previous quarter — a growth rate on par with that seen in late 2024.
What to watch: Hotter activity came alongside an uptick in inflation. The Fed's go-to inflation measure— personal consumption expenditures, excluding food and energy costs— rose at a 2.9% rate, the highest since the end of 2024.
The bottom line: "Even if revisions show that GDP grew by a bit less in 2025 than the latest numbers suggest, growth genuinely seems to have been supported by continued resilience among consumers and the boom in AI capex," Pantheon Macro economist Oliver Allen wrote in a note.
