The U.S. economy grew at a faster pace in the summer compared to the spring, driven by strong consumer spending and investments in artificial intelligence. Gross domestic product increased at an annual rate of 3.4 percent from July through September, according to a Commerce Department report released Thursday, following a 2.2 percent annual growth rate in the previous quarter.
Growth Drivers and Uneven Impact
A major driver of third-quarter GDP growth was robust investment from artificial intelligence companies building data centers and spending heavily on technology development. Consumer spending also fueled the growth, led primarily by higher-income Americans who can better withstand stubbornly high inflation. The strong economic data comes just days ahead of the midterm elections, even as many citizens report feeling gloomy about the economy due to inflation raising the costs of daily necessities and conflict with Iran increasing energy expenses like gasoline.
Economic growth has not spread evenly across households, leaving lower-income Americans to struggle more than high earners as wage growth falls behind inflation. Siri Steven, a manager at a resale store in Decorah, Iowa, stated that she and her husband have delayed renovations on their historic home of over 130 years. “We barely go out to eat now,” Steven said. “I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft.”
Steven added that her family lives paycheck to paycheck and cannot save money. Data from a separate Commerce Department report showed the U.S. personal saving rate dropped to 3.8 percent in September, down from 4.1 percent in August. The same report indicated that prices rose 3.6 percent in September compared to the previous year, remaining well above the Federal Reserve’s 2 percent target.
Federal Reserve Decisions and Outlook
The Federal Reserve monitors this inflation metric closely when deciding benchmark interest rates, and the central bank opted against raising rates on Wednesday. However, Thursday’s inflation figures added pressure for a potential rate increase during the upcoming Fed meeting in December.
Economists have also expressed concern regarding long-term fiscal health. Mark Zandi, chief economist at Moody’s Analytics, cautioned that despite solid GDP numbers, the economic expansion feels delicate as businesses and consumers navigate challenges such as tariffs and the U.S. conflict with 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.”
