By Salma El-Sakka
The U.S. economy expanded at a 3.4% annualized pace in the third quarter, accelerating from 2.2% growth in the second quarter, according to the first of three Commerce Department estimates released Thursday. The advance was driven by strong household spending, which rose at a 3.8% rate, and a surge in business investment tied to artificial intelligence technology.
Business investment surges on AI boom
Commercial investment excluding housing jumped 12.7%, lifted by outlays on information processing equipment that soared 37.4%. Software investment increased 9.6% and research and development spending rose 7.5%. The figures topped the 3% growth forecast by economists surveyed by FactSet. Residential investment, constrained by high mortgage rates, fell 3.3% for its sixth decline in the last seven quarters.
Resilience despite energy shock from Iran conflict
The performance underscores the resilience of the world's largest economy even as higher energy costs from fighting with Iran push U.S. oil prices above $100 a barrel, up from less than $70 before the war. Growth has remained robust despite the inflationary pressure from elevated energy prices.
Inflation accelerates days before midterm elections
Separate data showed the personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, rose 3.6% in September from a year earlier, up from 3.4% in August. On a monthly basis, prices climbed 0.5%, the largest increase since May. Core inflation, excluding food and energy, increased 3.1% annually and 0.3% monthly.
Voter sentiment sours on economy and Trump
The inflation surge arrives less than a week before midterm elections in which affordability has become a central issue. Polls indicate most voters disapprove of the economy and President Donald Trump's handling of rising costs. Trump campaigned in 2024 on lowering gasoline prices below $2 a gallon; the national average now stands around $4.25.
Fed faces pressure to raise rates in December
The reports come a day after the Federal Reserve left its key interest rate unchanged. With inflation well above the central bank's 2% target and the economy expanding briskly, policymakers will remain under pressure to raise rates at their next meeting in December.
