Economy: Q3 Growth Hits 3.4%

The US economy expanded at a 3.4% annualized rate in the third quarter, according to an advance estimate released by the Bureau of Economic Analysis on Thursday. This figure exceeded the 3.2% pace predicted by economists polled by Reuters.

The growth outperformance came despite higher oil prices resulting from the conflict in the Middle East. Resilient consumer spending and business investment in artificial intelligence more than offset the impact of those rising energy costs. Estimates for the quarter had ranged widely, from a 1% growth rate to a 4.2% pace.

Consumer spending, which constitutes more than two-thirds of the economy, increased at a 3.8% pace during the July-September period. This matches the growth rate recorded in the second quarter. Low layoff rates and moderate hiring have supported this consumption, although wage gains have occasionally fallen behind inflation.

The strong GDP figure contrasts with recent surveys showing households have a pessimistic view of the economic climate. This sentiment is reflected in President Donald Trump's record-low approval ratings and a decline in consumer confidence. The report was published less than a week before the midterm elections that will determine control of Congress.

Federal Reserve Chairman Kevin Warsh stated that economic activity is expanding at a strong pace. He noted that domestic spending has been resilient despite uncertainty from geopolitical developments. The Fed left its benchmark interest rate in the 3.75%-4% range on Wednesday, acknowledging that inflation remains elevated.

Economists generally expect the central bank to raise rates in December. Some analysts argue that the strong GDP numbers may not fully represent the broader economic health due to the growing share of AI-related spending. Tech firms have borrowed large sums for these projects, creating potential risks for equipment spending if returns remain uncertain.

Average gasoline prices remain above $4 per gallon as the US-Israel war on Iran continues. This persistent cost has led economists to anticipate a slowdown in consumer spending in the coming months.