WASHINGTON, Dec 23 – The U.S. economy recorded an impressive 4.3% annualized growth rate in the third quarter, marking the fastest pace of expansion in the past two years. The growth was driven by solid consumer spending, increased government outlays, and a significant rise in exports. This rate represents an increase from the 3.8% growth observed in the April-June quarter and surpasses forecasts from many economists, who had anticipated a more modest 3% gain.
Consumer spending, which accounts for roughly 70% of overall economic activity, rose at a 3.5% annual pace, up from 2.5% in the previous quarter. Households continued to spend on goods and services despite inflationary pressures, indicating that consumer confidence remains relatively strong. At the same time, government consumption and investment increased by 2.2%, rebounding from a minor 0.1% contraction in the second quarter. Much of this growth was fueled by higher federal and state spending, including defense expenditures.
Private business investment, however, saw a small decline of 0.3%, primarily due to reduced spending on housing and nonresidential buildings, including offices and warehouses. While any decline in investment might raise concerns, this was significantly smaller than the sharp 13.8% drop recorded in the previous quarter. Economists interpret this moderation as a cautious adjustment by businesses to a higher-interest-rate environment rather than a retreat from expansion.
Trade activity also contributed to the overall growth picture. Exports surged at an 8.8% annual rate, while imports fell 4.7%, further boosting GDP. These trends highlight the resilience of U.S. businesses in maintaining global competitiveness amid ongoing trade uncertainties and complex international supply chains.
Looking beyond headline GDP figures, the underlying measure of the economy—one that excludes volatile factors such as government spending, exports, and inventory changes—expanded at a 3% annual rate. This was slightly higher than the 2.9% pace recorded in the second quarter, suggesting that the economy’s core components, including consumer demand and private investment, remain solid even as broader economic challenges persist.
Inflation remains a key concern for policymakers. The personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose to a 2.8% annual rate in the third quarter, up from 2.1% in the previous period. Core PCE inflation, which strips out food and energy costs, climbed to 2.9% from 2.6%. Persistent inflation at these levels could influence the central bank’s future decisions on interest rates, potentially limiting the likelihood of a near-term cut despite signs of a slowing labor market.
The job market has softened in recent months. In November, the economy added 64,000 jobs, while October saw a loss of 105,000 positions. The unemployment rate rose to 4.6%, the highest level since 2021. Economists describe the labor market as being in a “low hire, low fire” state, with employers exercising caution in adding or reducing staff amid economic uncertainty and elevated borrowing costs. Since March, average monthly job growth has slowed to 35,000 from 71,000 in the year ending in March, reflecting the overall cautious sentiment in the business sector.
Despite these labor market and inflation concerns, the U.S. economy has maintained its momentum since a brief contraction earlier in the year, which was largely due to shifts in trade activity ahead of tariff implementations. Beyond that short downturn, economic activity has continued at a healthy pace, even in the face of higher interest rates imposed over the past two years to curb inflation. Strong consumer demand, government spending, and exports have remained central to supporting growth.
Financial markets responded cautiously to the GDP report. Stock indices in the U.S. declined slightly, reflecting investor concerns that faster-than-expected growth, combined with elevated inflation, may reduce the likelihood of additional Federal Reserve rate cuts in the near term. Analysts suggest that the interplay between economic activity and price pressures will be a critical factor in shaping monetary policy decisions in the months ahead.
Looking forward, economists emphasize that the path of the economy will depend on a careful balance between sustaining growth and managing inflation. Continued consumer spending and government investment could support ongoing expansion, but persistent price pressures and a softening labor market will require attention. Households and businesses alike will need to navigate higher costs, slower job creation, and evolving monetary and fiscal policies as the year progresses.
Overall, the third-quarter GDP figures reflect a U.S. economy that is expanding faster than many had anticipated. Resilient consumer demand, steady government investment, and strong export growth are supporting the broader economy. At the same time, inflationary pressures and a cooling labor market highlight the need for careful monitoring to ensure long-term stability and sustainable growth.