The U.S. economy is accelerating, gathering enough momentum from the artificial intelligence boom and robust consumer spending to crash through wars, volatile markets and trade disruptions. Indeed, no major advanced economy has been growing like the U.S.
The expansion has boosted certain segments of the economy, while weighing on others. At the same time, higher borrowing costs have grown alongside profits and wealth. Wages have risen, though inflation has eaten most of the gains.
"The economy is robust, but it is also extremely concentrated," said EY-Parthenon economist Gregory Daco.
The unusual economic brew is likely to shape the outcome of U.S. politics. Voters head to the polls on Tuesday as beneficiaries of a stable job market and fatter salaries, but frustrated with the cost of living and President Trump's handling of the economy.
Last week's gross domestic product report from the Commerce Department painted a picture of strength. The economy grew at a 3.4% annual rate in the third quarter, its fastest pace in a year. A closely watched measure of private demand grew even faster -- 4.9% -- putting in its best performance since 2021, when the economy was rebounding from the pandemic.
Consumer spending was the largest contributor to third-quarter GDP growth. For the second quarter in a row it increased at a 3.8% annual rate, adjusted for inflation. Helping to fuel that rise: a substantial increase in household wealth, driven by the artificial intelligence boom. Despite weakness over the past month as investors fret over AI risks, the S&P 500 on Friday closed up 11% from the end of last year.
Spending by businesses took off. Private, nonresidential investment -- a measure of capital spending -- increased at an inflation-adjusted 12.7% annual rate. AI-related areas were standouts. Spending on computing equipment grew at a 67% rate, while spending on data center construction rose at a 127% rate.
AI, however, has crowded out other segments. Housing construction has flatlined, hit by high borrowing, materials and labor costs as developers compete with the data center build-out.
Consumer and capital spending gains were more than enough to offset a widening trade deficit (much of the equipment going into AI is imported) and persistent weakness in the housing market.
In a Wall Street Journal poll conducted last month, 62% of respondents rated the economy as not so good or poor, versus 37% who rated it good or excellent. In addition to showing voters trust Democrats more than Republicans on handling the economy, the poll indicated that 51% of registered voters expect to pull the lever for Democrats, versus 44% for the GOP.
Democrats' apparent advantage can be hard to square with overall economic growth, even after taking inflation into account.
A model developed by Yale University economist Ray Fair uses GDP, a measure of inflation and historical voting patterns to predict electoral outcomes. Plugging in the latest data, it indicates Democrats should garner about 50.6% of the two-party vote share in House of Representatives contests. Considering Republicans' districting advantage, that might not be enough to take the chamber.
Yet Democrats are widely expected to win the House, with polls suggesting they are more likely than not to win a majority in the Senate. The polls could, of course, be wrong, and Republicans could outperform expectations. Even so, discontent over the economy appears widespread.
Barclays economist Jonathan Millar said the economy is in good shape, though maybe not quite as robust as the third-quarter GDP figures suggest.
Some of the gain in consumer spending, for example, might have been due to online summer sales and the World Cup. Separate Commerce Department figures showed that inflation-adjusted consumer spending was flat in September from a month earlier, suggesting momentum there has slowed.
Even with the surge in stock prices, Americans' ability to keep spending at their recent pace could be limited.
Over the 12 months ended in September, inflation-adjusted, or real, spending increased by 2.5%. But real, after-tax personal income grew 1%. As a result, the saving rate -- the share of income left over after spending -- dropped from 5.1% to 3.8%. It has rarely been so low.
The slower pace of income growth could be one of the reasons people are giving the economy low marks -- after inflation, they are having a hard time keeping up.
"Yes, the tide is rising, but it's not lifting all boats this time," said Joe Brusuelas, economist at RSM.
This is particularly true of people who get most of their income from their paychecks, as opposed to sources like business income and retirement benefits. Since Trump came into office in January 2025, average hourly earnings have risen 5.5%, according to the Labor Department. But with consumer prices up 5.4% over the same period, nearly all of that wage gain has been eaten up by inflation.
Inflation could also be packing a harder punch than even the 3.7% increase in prices from a year ago suggests.
That is in part because rather than focusing on year-over-year change in prices, many people are comparing prices they are paying now to what they recall paying in the past. Nor does it help Republicans that many voters are blaming recent price increases on actions Trump has taken. In The Wall Street Journal poll, one quarter of respondents said that they thought the Iran war was the most important contributor to high prices, while another quarter said Trump's tariffs.
Moreover, while interest rates aren't directly reflected in measured inflation, people nonetheless see them as costs. The increase in the average rate on a 30-year mortgage to 7.24% from 6.17% a year ago has made affording a home even more challenging for many would-be owners.
Americans' downbeat view of the labor market also seems out of step with a low, 4.2% unemployment rate. A September New York Fed survey found that people put a 44% chance that unemployment will be higher a year from now. In the 13 years of the survey's history, the only time people put the probability substantially higher was during a brief period after the pandemic hit.
Employment growth has slowed markedly since January 2025, when Trump came back into office. The country has added an average of only about 39,000 jobs a month. But economists generally ascribe that to the combined effects of an aging population and an immigration crackdown that has reduced the supply of available workers. Layoffs are low, with new claims for unemployment benefits falling to some of the lowest levels in history.
The pace of hiring is also low, however -- while employers aren't firing many workers, they also aren't taking many new workers on. That has made it difficult for people trying to break into the job market, such as new graduates. It could also be making many people with jobs effectively stuck in the positions they have, and unable to advance.
AI could be leaving a mark on the job market. While it is unclear how much work is getting displaced by technology, "people are getting worried," said JPMorgan Chase economist Michael Feroli.
The boom in AI spending, while substantial, also seems narrow. That means that it is for now not directly helping as many Americans as would be the case if more businesses were taking part in it.
"A few sectors are doing exceptionally well, and others are OK," said EY-Parthenon's Daco.
Details of the GDP report, for example, showed that over half of last quarter's increase in spending on nonresidential structures -- everything from factories to malls to churches to hospitals -- came from data centers. Two-thirds of the increase in capital spending on equipment came from computer equipment.
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