Economy 4 min read By Arthur Ellington
US economy grew 3,4% in third quarter as consumer spending and AI investment surged
Strong consumer spending and investment in artificial intelligence infrastructure drove US growth to an annual rate of 3,4% in July to September, while inflation rose to 3,6% in September ahead of the midterm elections.
The US economy grew at an annual rate of 3,4% in the July to September quarter, according to the government, a marked acceleration from 2,2% in the April to June period. The expansion was driven by a sharp rise in consumer spending and by business investment, which was fuelled in large part by spending on artificial intelligence infrastructure.
Consumer spending climbed 3,8% at an annual rate in the third quarter, marking the second straight quarter of strong growth. That compares with a 0,7% increase in the first three months of the year. Economists note, however, that households may struggle to sustain that pace, as rising prices are eroding incomes and many appear to be drawing on savings or relying on credit to keep spending.
Inflation has been the counterweight to the upbeat growth figures. Consumer prices rose 3,6% in September from a year earlier, the Commerce Department said on Thursday, up from 3,4% in August. On a monthly basis, prices climbed 0,5%, compared with 0,3% in August and the largest monthly increase since May. Core inflation, which excludes the volatile energy and food categories, rose to 3,1% from a year earlier, up from 3% in August.
Rising petrol prices drove much of the increase. Renewed violence in the Middle East has kept oil above 100 dollars a barrel, up from below 70 dollars before the Iran war. The national average for a gallon of petrol is about 4,25 dollars, far above the level Donald Trump promised to restore when he campaigned in 2024 on lowering the cost of living. Prices also rose outside fuel, with the cost of services such as shipping, hotel rooms and utilities increasing quickly between August and September.
Ksenia Bushmeneva, an economist at the bank TD, said in a commentary on the report that the inflation outlook had become more concerning. «Price pressures are showing signs of heating up», she wrote. «Elevated gasoline prices are keeping headline inflation hot, but underlying pressures are also broadening.» She added that higher borrowing costs, together with these headwinds, were likely to weigh on consumer demand in the coming quarters.
The data is politically sensitive. Polls show that rising prices have soured most voters on the economy, and that they give Mr Trump poor marks for handling the cost of living. The figures were published less than a week before midterm elections in which the cost of living has become a central issue for millions of Americans.
The inflation figures also bear on monetary policy. The Federal Reserve, which is tasked with combating inflation, left its key interest rate unchanged a day before the growth and price data were released. Strong growth combined with persistently high prices could nonetheless mean more pain for Americans when the Fed meets in December, and a rate increase is considered considerably more likely than a cut, which would raise borrowing costs across the economy.
The inflation measure published on Thursday comes from the personal consumption expenditures price index, which closely tracks the better-known consumer price index released earlier in the month. The Federal Reserve pays closer attention to the PCE index because it gives less weight to housing prices and captures changes in consumers' shopping habits.
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