The U.S. economy expanded at an annualized rate of 3.1% in the third quarter, according to a revised report released Thursday by the Commerce Department. This adjustment from the initial estimate of 2.8% reflects stronger-than-anticipated consumer spending and export growth, defying widespread predictions of a slowdown.
Consumer spending, the backbone of the American economy, surged by 3.7%, marking its fastest pace since early 2023. Exports also saw a significant boost, climbing 9.6%, while business investment remained subdued with only a 0.8% growth rate. Despite high interest rates, the U.S. economy maintained its resilience, continuing its streak of exceeding 2% growth in eight of the last nine quarters.
Government spending contributed notably to the GDP figures, with federal expenditures increasing by 8.9%, including a 13.9% rise in defense spending. Equipment investments led the business sector with a 10.8% increase, further bolstering the economic outlook.
Inflation metrics in the report provided mixed but generally positive signals. The personal consumption expenditures (PCE) index, the Federal Reserve's preferred gauge for inflation, rose at an annualized rate of just 1.5% in the third quarter, down from 2.5% in the previous quarter. Core PCE inflation, which excludes food and energy prices, edged slightly higher than earlier estimates but still showed improvement from prior quarters, registering at 2.2%.
Despite these gains, economic headwinds persist. The unemployment rate stands at 4.2%, higher than the 3.4% low seen in April 2023, though still historically favorable. The Federal Reserve's 11 rate hikes in 2022 and 2023 have helped temper inflation but continue to pose challenges for certain sectors.
In light of these developments, the Federal Reserve announced its third interest rate cut of the year earlier this week, signaling fewer reductions in 2025. Federal Reserve Chair Jerome Powell acknowledged the complexity of the current economic landscape, noting progress against inflation while emphasizing the importance of sustaining growth.
The revisions arrive as President-elect Donald Trump prepares to take office in January, inheriting an economy that, while robust, faces critical uncertainties. His administration's approach to taxes, trade, and immigration is expected to play a pivotal role in shaping economic performance in the coming months.
