US economy beats forecasts to grow at 3.4% rate in third quarter

The US economy expanded at an annualised rate of 3.4 per cent in the third quarter, topping Wall Street expectations, as the AI spending boom continued to fuel growth.

The figure marked an acceleration from the 2.2 per cent rate of expansion in the second quarter and was ahead of the 3.2 per cent forecast in a Bloomberg poll of analysts.

Real final sales to private domestic purchasers — a closely watched metric that combines consumer spending and fixed private investment — rose 4.9 per cent in the third quarter, up from 4.6 per cent.

Government spending also increased, largely reflecting oil sales from the Strategic Petroleum Reserve. Higher imports, which count as a negative in calculating GDP, offset some of the gains.

“It looks like a strong quarter driven by domestic demand activities and a drag from trade,” said Eric Winograd, senior economist for fixed income at AllianceBernstein. “We talk about the boost to growth from AI, but a lot of that stuff is imported.”

US GDP growth has been underpinned this year by huge investment by corporate America in AI data centres and high-tech equipment. Consumers have also continued to splash out despite inflationary pressures.

Thursday’s data came alongside higher inflation figures, with the Personal Consumption Expenditures Index, the Federal Reserve’s preferred metric, rising to an annual rate of 3.6 per cent in September, up from 3.4 per cent previously.

But despite the price pressures, Wednesday’s data showed American consumers continued to splash out, with spending on healthcare, food and accommodation rising.

Federal Reserve chair Kevin Warsh said on Wednesday after the central bank held rates steady that “economic growth has strengthened” as he hailed “healthy” consumer spending and capital expenditures that he said were at a “historically high share of GDP”.

Jim Bianco, president at Bianco Research, said: “The more interesting number is the inflation number, which was hotter than expected . . . I’ll revisit my question from yesterday: why didn’t the Fed hike rates again?”

President Donald Trump has described the US economy as the “hottest in the world” as growth consistently outpaces other G7 nations.

The market reaction following the GDP report was muted, with a small dip in the two-year Treasury yield and in the US dollar index. Stock market futures ticked higher.