Why It Matters
The U.S. economy expanded at a faster pace than economists expected during the three months ending in September. The Commerce Department’s initial estimate points to continued growth even as inflation remained above the Federal Reserve’s target.
What Happened
The Commerce Department released its third-quarter gross domestic product data Thursday, reporting annualized growth of 3.4%. The result exceeded the 3.1% economists had expected and accelerated from the 2.2% annualized growth recorded in the previous quarter.
Consumer spending and investment were the main contributors to the expansion. Consumer spending increased despite higher prices and accounts for about two-thirds of U.S. economic activity.
The report is an initial estimate and may be revised. AI-related semiconductor imports likely reduced the reported GDP figure, while hiring continued to increase at a slower pace. Unemployment remained low by historical standards.
Kevin Warsh, the Fed chair, said, “Economic activity is expanding at a strong pace. While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient.”
By the Numbers
3.4% annualized — third-quarter GDP growth
3.1% — economists’ expectation for third-quarter GDP growth
2.2% annualized — GDP growth in the previous quarter
2.5% annualized — GDP growth during the first three months of this year
about two-thirds — share of U.S. economic activity accounted for by consumer spending
3.7% — September price increase compared with a year earlier
2% — Federal Reserve inflation target
Zoom Out
The GDP report came as the Federal Reserve continued weighing economic growth against persistent inflation. The central bank raised interest rates by a quarter of a percentage point last month, its first increase in three years, then left rates unchanged Wednesday.
Prices in September were 3.7% higher than a year earlier, more than a percentage point above the Federal Reserve’s 2% target. Warsh, who took the helm of the Federal Reserve in May, said, “It’s our responsibility to get inflation down.”
What’s Next
The Commerce Department will revise the third-quarter GDP estimate. The Federal Reserve will continue assessing growth, employment and inflation before its next policy decision; the source material places about 85% odds on a quarter-point rate hike at the December meeting.