Consumer Spending Powers Sharp US Economic Expansion
During the third quarter, the US economy grew at its fastest rate in two years. As a result, strong spending by households became the main driver of economic growth.
People bought a lot more goods, services, and international travel. Because of this, the overall economic momentum was stronger than most previous predictions.
GDP Growth Surpasses Expectations Despite Headwinds
Last quarter, the gross domestic product grew at a rate of 4.3%. Because of this, growth was much higher than economists had expected.
The Commerce Department released the data after delays caused by the government shutting down. So, the report shows conditions that have changed somewhat since then.
Wealthier Households Drive Uneven Spending Patterns
A lot of the recent rise in consumption across the country was caused by households with higher incomes. Because of this, the rise in stock market wealth helped discretionary spending grow.
Inflation, on the other hand, made middle- and lower-income families spend less. Because of this, economists call the trend a K-shaped economy.
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Trade and Exports Provide Additional Growth Support
Exports rose sharply, while imports fell for the second quarter in a row. As a result, the US trade deficit got smaller, which helped GDP grow.
Tariffs made trade flows change a lot during the year. Because of this, the effects of trade on growth were at levels that are very rare in history.
Business Investment Shifts Toward AI and Equipment
Last quarter, businesses kept spending money on equipment and AI. So, spending on technology made up for the drop in factory construction activity.
Larger companies were better able to handle higher tariff costs than smaller ones. Because of this, the results of investments were different for businesses of different sizes.
Inflation Pressures Complicate Federal Reserve Outlook
Costs for food, energy, and healthcare all went up, which sped up inflation in the third quarter. As a result, rising prices made it harder for many households to buy things.
The PCE index, which the Federal Reserve keeps an eye on, went up even more than its target. So, policymakers told people to be careful about more rate cuts in the near future.
Policy Debate Intensifies Around Tariffs and Growth
President Donald Trump said that tariffs were to blame for the strong economy during the quarter. As a result, trade policy became a major topic of political debate.
Economists say that tariffs make things less affordable, even though they help the economy grow. In the end, balancing the fight against inflation with keeping the economy moving forward is still a key policy test.
