The US economy recorded its strongest growth rate in nearly a year during the third quarter, with a corporate investment boom — particularly massive capital expenditures tied to artificial intelligence — serving as the central engine of this expansion.
According to preliminary data released Thursday by the Bureau of Economic Analysis (BEA), real GDP grew at an annualized quarterly rate of 3.4% in the third quarter, surpassing the median forecast of 3.2% in a Bloomberg survey of economists and significantly exceeding the 2.2% growth recorded in the second quarter.
Meanwhile, the core PCE price index for the third quarter posted a preliminary annualized quarterly reading of 2.5%, down from the prior 3.3% but slightly above the expected 2.4%.
Federal Reserve Chair Warsh said on Wednesday, after keeping interest rates unchanged, that "economic growth has strengthened somewhat," noting that consumer spending and capital expenditures represent "historically high shares of GDP," and characterized the current state as "healthy."
This GDP report is the last major economic health check before the US midterm elections, the outcome of which will determine control of both chambers of Congress and shape the policy landscape for the final two years of the Trump administration.
AI Drives Corporate Investment to a Decade-Plus High
Business investment was the brightest spot in this quarter's GDP. Third-quarter business investment grew at an annualized rate of 12.7%, the highest increase since 2020, with spending on information processing equipment and industrial equipment both climbing sharply. Among these, the contribution of equipment spending to GDP reached its highest level since 2011 (excluding the pandemic rebound period), driven primarily by the boom in artificial intelligence infrastructure construction.
The key gauge of domestic demand vitality — real final sales to private domestic purchasers — rose 4.9% in the third quarter, up from 4.6% in the second quarter, indicating that the economy's internal momentum continues to strengthen.
Eric Winograd, senior fixed income economist at AllianceBernstein, said:
"This was a strong quarter driven by domestic demand activity, with trade acting as a drag. We talk about AI boosting growth, but a large portion of the related equipment is imported."
Consumer Resilience Persists, but Inflation Risks Emerge
Household consumption also performed solidly. Third-quarter personal consumption expenditures grew at an annualized rate of 3.8%, maintaining that pace for a second consecutive quarter and exceeding the market expectation of 3.4%, even as consumer confidence currently sits at historic lows — with inflation-driven cost-of-living pressures continuing to weigh on the household sector.
However, inflation signals cannot be ignored. Data released the same day by the BEA showed that the PCE price index rose 0.5% month-over-month in September, the largest single-month increase since March of this year; excluding food and energy, core PCE rose 0.3% month-over-month.
The core PCE, which strips out food and energy, rose 0.3% month-over-month, both in line with market expectations. In addition, real personal spending nearly stalled in September, cooling markedly after a sharp increase the previous month, suggesting that consumption momentum was weakening at the margin during the third quarter.
Net Export Drag Coexists with Surge in Imports
Trade data was the primary drag this quarter. Net exports subtracted 3.3 percentage points from third-quarter GDP growth, the largest drag since the beginning of last year. This situation may reflect a combination of factors: a surge in data center equipment imports, businesses front-loading purchases ahead of tariffs taking effect, and supply chain disruptions all pushing up import volumes. By contrast, changes in inventories contributed a positive 1.6 percentage points, partially offsetting the net export drag.
The conflict in the Middle East and the Russia-Ukraine war continue to push up fuel and some commodity prices, and combined with the policy effects of tariffs imposed by the Trump administration, consumer goods prices are under upward pressure, further suppressing consumer confidence.
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