The US economy expanded at a faster-than-anticipated pace in the third quarter, fueled by strong consumer spending, though growth momentum appears to be slowing amid rising living costs and the impact of the recent government shutdown.
Gross domestic product increased at a 4.3% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis reported in its initial estimate of third-quarter GDP. This follows a 3.8% expansion in the second quarter and exceeded economists’ expectations, who had forecast growth of 3.3%.
Consumer spending, a major driver of the third-quarter surge, rose at a 3.5% rate, up from 2.5% in the previous quarter. Analysts said much of the acceleration stemmed from a rush to purchase electric vehicles before the expiration of federal tax credits on September 30. Sales of motor vehicles fell sharply in October and November, while spending in other sectors showed mixed results.
The Commerce Department’s data was delayed by a 43-day government shutdown, leaving economists cautioning that the report may already be outdated. The Congressional Budget Office has estimated that the shutdown could reduce GDP by between 1.0 and 2.0 percentage points in the fourth quarter. Most of that decline is expected to be recovered, though the CBO projects that $7 billion to $14 billion of output could be permanently lost.
Surveys indicate that higher-income households are largely driving consumer spending, benefiting from a stock market boom that has boosted household wealth. Middle- and lower-income Americans, however, are facing challenges from rising costs of living linked to tariffs implemented under President Donald Trump’s administration, creating a “K-shaped” economy, economists said.
The same divide is evident among businesses. Larger corporations have generally managed to absorb higher costs from import duties and continue investing in artificial intelligence, while smaller companies are struggling to cope with tariffs. Economists warn that these factors contribute to an affordability crisis affecting households and could be eroding Trump’s approval ratings.
Rising electricity demand from the rapid growth of AI and cloud computing data centers, combined with anticipated higher health insurance premiums in 2026, adds pressure on household budgets. The Federal Reserve cut its benchmark overnight interest rate by 25 basis points this month to a range of 3.5%–3.75% but indicated that borrowing costs are unlikely to fall further in the near term. Policymakers said they would wait for clearer signals on the labor market and inflation before making additional adjustments.
The mixed signals in the economy highlight strong short-term growth but also reveal underlying strains for both consumers and small businesses, leaving economists closely monitoring how these trends will shape the coming quarters.
