The nation’s real Gross Domestic Product (GDP) continued to outperform economists’ predictions in the third quarter, a report released Thursday by the U.S. Commerce Department reveals.
Real (seasonally-adjusted) GDP increased at an annual rate of 3.4% in the third quarter (July, August, and September), according to the advance estimate published Thursday. That’s up from the second quarter’s 2.2% growth and the fastest pace in a year. The third quarter’s GDP growth also exceeded economists’ prediction of 3.1%.
Both the Commerce Department and economists have tended to underestimate real GDP increases in recent quarters.
In September, for example, the Commerce Department had to upwardly revise both its second quarter and first quarter measures of GDP growth, which exceeded economists’ expectations. In that report, real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment was revised up 0.4 percentage point from the previous estimate of 4.2%, which had been revised up from a prior estimate of 3.9%.
The third quarter’s GDP growth is greater than the second quarter’s 2.2% increase and the fastest rate since the third quarter of 2025. The main contributors to the increase in real GDP in the third quarter were consumer spending, investment, and government spending.
Consumer spending grew 3.8% in the third quarter, matching the second quarter’s growth – and remaining at the fastest pace since the fourth quarter of 2024. Consumer spending accounts for more than two-thirds of the nation’s economic output,
Those additions to GDP were partly offset by a decrease in exports and an increase in imports, which are a subtraction in the calculation of GDP. The drop in exports primarily reflected a decrease in goods (led by petroleum and related products), while the largest contributor to imports was capital goods, other than automotive.
The primary contributors to the increase in private inventory investment were wholesale trade and manufacturing (both led by nondurable goods industries).
The increase in consumer spending reflected increases in both goods and services:
- Within services, the increase was led by health care (mainly hospitals and outpatient services), food services and accommodations (mainly purchased meals and beverages).
- Within goods, the increase was led by other nondurable goods (particularly prescription drugs).
Total government spending rose at a 5.3% annualized rate in the third quarter. Here, federal government expenditures jumped 15.8%, while state and local spending dipped 0.1%%. The federal government increase was boosted by a 22.2% rise in nondefense consumption.
“The U.S. economy is on steroids right now,” thanks to higher-then-expected GDP growth, Navy Federal Credit Union Chief Economist Heather Long told The Hill. And, while inflation remains a concern, the economy is being largely fueled by “the massive AI business investment surge,” Long noted.
