U.S. Economy Surges: 4.3% GDP Growth in Q3 Crushes Forecasts

• The U.S. economy expanded at a robust 4.3% annualized rate in the third quarter, exceeding expectations and driven by a 3.5% increase in consumer spending, much of which reflected preemptive electric vehicle purchases before tax credit expiration.
• Economic disparities highlighted a divide where higher-income households sustained spending amid stock market gains, while middle- and lower-income groups faced pressures from tariffs, rising living costs, and anticipated increases in utilities and health insurance.
• Momentum moderated heading into the fourth quarter due to a 43-day government shutdown projected to reduce GDP by 1.0 to 2.0 percentage points, with the Federal Reserve cutting rates to 3.50% – 3.75% but signaling no imminent further reductions.

The U.S. economy showed notable resilience in the third quarter, with gross domestic product expanding at a 4.3% annualized rate. The result exceeded consensus forecasts of 3.3% and accelerated from the 3.8% pace recorded in the second quarter. Growth was driven largely by consumer spending, which rose at a 3.5% rate following a 2.5% increase in the prior period. A significant portion of this spending surge stemmed from consumers advancing purchases of motor vehicles, particularly electric vehicles, ahead of the September 30 expiration of federal tax credits. Subsequent data indicated a decline in motor vehicle sales during October and November, alongside varied spending patterns in other categories.

The release of this third-quarter data faced delays due to a 43-day government shutdown, rendering the figures somewhat outdated upon publication. Looking ahead, the Congressional Budget Office projected that the shutdown would reduce fourth-quarter GDP growth by between 1.0 percentage point and 2.0 percentage points, though the majority of this impact is expected to reverse in subsequent periods, with a permanent loss estimated at between $7 billion and $14 billion.

Economic disparities emerged prominently, as higher-income households sustained much of the consumption growth, bolstered by gains in equity markets that enhanced household wealth. In contrast, middle- and lower-income groups faced pressures from elevated living costs, exacerbated by sweeping import tariffs implemented under President Donald Trump’s policies. These duties raised input expenses, contributing to an affordability challenge that influenced public sentiment toward administration policies. Additional strains included rising utility costs driven by increased electricity demand from artificial intelligence infrastructure and data centers, as well as anticipated elevations in health insurance premiums for 2026.

On the corporate side, larger entities largely absorbed the tariff-related cost increases and continued capital expenditures, including in artificial intelligence technologies, while smaller firms encountered greater difficulties in managing these burdens.

In response to evolving labor market conditions and persistent inflation dynamics, the Federal Reserve reduced its benchmark overnight interest rate by 25 basis points this month, establishing a target range of 3.50% – 3.75%. Policymakers indicated that further reductions in borrowing costs were not imminent, pending additional evidence on employment trends and price stability. Overall, while third-quarter growth exceeded expectations, signs of moderating momentum and sectoral divergences highlighted ongoing vulnerabilities in the economic outlook.

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