The U.S. economy grew at a 3.4% annual rate in the third quarter, its fastest pace in a year, even as gasoline above $4 a gallon pushed September inflation up to 3.6%.
Real gross domestic product accelerated from a 2.2% pace in the second quarter, the Bureau of Economic Analysis reported Thursday in its first estimate. Investment, consumer spending and government spending drove the gain, partly offset by weaker exports.
Economists polled by Reuters had forecast 3.2% growth, and the gain was the quickest since the third quarter of 2025, Reuters reported. It was the last major economic report before Tuesday’s midterm elections.
Consumer spending, which accounts for more than two-thirds of the economy, rose at a 3.8% rate, matching the prior quarter. Business spending on equipment surged 20.9%, the fastest since the third quarter of 2020.
Much of that spending went to imports, which climbed at a 19.7% rate and subtracted 2.64 percentage points from growth. Government spending rose 5.3%, while higher mortgage rates pushed residential investment back into contraction.
“Consumption was still strong. But business investment is turbocharging the U.S. economy,” Heather Long, chief economist at Navy Federal Credit Union, wrote on X. Charles Schwab strategist Liz Ann Sonders noted the AI build-out “is very import-driven.”
President Donald Trump welcomed the numbers before heading to a campaign rally. “We had a great morning from the standpoint of GDP,” he told reporters. The White House hailed the report on X as a major boost for the economy.
Inflation Picks Up
Prices told a less comfortable story. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 0.5% in September and 3.6% from a year earlier, the BEA said in a separate report.
Excluding food and energy, prices rose 0.3% for the month and 3.1% over the year. Annual PCE inflation was 3.4% in August.
The monthly jump was the largest since March and was driven largely by energy, CNBC reported. Gasoline and other energy goods rose 9.2% in September alone.
Household budgets felt the squeeze. Inflation-adjusted disposable income fell 0.3% in September, and inflation-adjusted consumer spending was unchanged. The personal saving rate stood at 3.8%.
Gas prices remain about $1 a gallon higher than a year ago as the U.S.-Israeli war with Iran drags on, The Guardian reported. The University of Michigan’s consumer sentiment index is down 15% since February.
Layoffs, however, remain rare. Initial jobless claims fell to a seasonally adjusted 194,000 in the week ended Oct. 24, near levels last seen in the late 1960s, a Labor Department report showed.
“Net, net, economic growth is powering ahead despite the uncertainty of geopolitical risks and the damage posed to many sectors of the economy by higher energy costs,” said Chris Rupkey, chief economist at Fwdbonds.
The data arrived a day after the Federal Reserve held its benchmark rate at 3.75% to 4%. Economists said strong growth paired with faster inflation strengthens the case for a rate hike in December.
“If the Fed is looking for more information on why they should act to restore price stability they can find it inside a slate of robust spending … stratospheric private non-residential investment and sizzling inflation data,” said Joseph Brusuelas, chief economist at RSM.
The BEA will release its second estimate of third-quarter growth on Nov. 25.
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