The U.S. economy expanded at a sharply faster pace than expected in the third quarter, according to a long-delayed government report that underscored the resilience of consumer spending even as inflation pressures intensified and economic momentum showed signs of uneven distribution.
Gross domestic product grew at an annualized rate of 4.3% in the July-through-September period, the U.S. Department of Commerce said Tuesday in its initial estimate. That exceeded the 3.2% growth economists surveyed by Dow Jones had expected and marked the strongest quarterly expansion in two years.
The report, released weeks late due to a government shutdown, replaces a previously scheduled second estimate and remains backward-looking. Markets showed little reaction, with stock futures modestly lower and Treasury yields holding higher following the release.
Consumer spending, which accounts for more than two-thirds of economic activity, accelerated to 3.5% growth from 2.5% in the prior quarter. Exports surged 8.8%, reversing a contraction in the second quarter, while government spending and a smaller drag from private fixed investment also supported growth.
A closely watched demand measure, real final sales to private domestic purchasers, rose 3%, a signal monitored by policymakers at the Federal Reserve for insight into underlying consumer strength. Despite the expansion, inflation pressures intensified during the period.
The personal consumption expenditures price index, the Fed's preferred inflation gauge, climbed 2.8%, while core PCE rose 2.9%, both well above the central bank's 2% target. The chain-weighted price index increased 3.8%, reflecting consumers' difficulty in trading down to cheaper alternatives.
Corporate profits also surged, rising $166.1 billion, or 4.2%, compared with a modest $6.8 billion increase in the second quarter, according to the report. The profit rebound highlighted the divergence between business performance and household financial stress.
Economists cautioned that the strong headline growth masked widening disparities across income groups. Surveys suggest higher-income households continued to drive spending, benefiting from equity-market gains, while middle- and lower-income consumers struggled under rising living costs.
"It was a good quarter, but that is not going to be sustained in the fourth quarter," said Brian Bethune, economics professor at Boston College. "Household budgets are squeezed, the average household, they are just barely keeping their nose above water in terms of real wage gains."
The data also reinforced what economists describe as a K-shaped economy. Lower-income households are allocating more of their budgets to necessities such as groceries and utilities, while cutting back on discretionary items including travel, clothing, and dining out.
Trade and industrial policy under Donald Trump also factored into the quarter's dynamics. Economists noted that large corporations have largely absorbed higher input costs from tariffs and increased investment in artificial intelligence, while smaller businesses have faced sharper pressure.
"The AI boom is masking the ill effects of the trade war," said Sal Guatieri, senior economist at BMO Capital Markets. "Growth will slow further in the fourth quarter due to the government shutdown before rebounding in the new year."
