GDP rockets up 4.3% in third quarter, surprising economists

MANHATTAN (CN) — The U.S. economy grew by 4.3% from July to September, according to federal data released Tuesday morning, much more than expected.

The GDP data was a far better than the 3.2% annualized growth analysts had predicted and roughly a full percentage point better than the 3.3% growth seen in the third quarter of 2024. It is also better than any gross domestic product reading from last year, though falling short of the 4.7% growth in the third quarter of 2023. GDP measures the economy’s total output of goods and services.

The latest GDP release was delayed by almost two months due to the government shutdown, which means some of the data analyzed is older than usual. While quarterly GDP reports typically are revised twice, this report will be revised just once more.

“A lot of other forecasters missed that this is essentially a second release that includes the results of a recently released quarterly services survey, which suggested services consumption and investment would come in strong,” Paul Ashworth, chief North America economist at Capital Economics, wrote in an investor’s note.

During the first quarter of this year, the U.S. economy shrank by 0.6%, while it gained 3.8% in the second quarter. According to the Bureau of Economic Analysis, the acceleration in GDP last quarter reflected a smaller decline in investment and a ramping up of consumer spending.

While consumer spending has remained strong, cracks have started to show. In the latest retail sales data, released last week by the U.S. Census Bureau, spending in October was flat at about $732.6 billion compared with $732.4 billion in September.

Spending in traditional retail categories posted solid gains, according to Michael Pearce, chief U.S. economist at Oxford Economics, indicating shoppers trying to get a jump on holiday purchases.

However, most of the spending was driven by “the ongoing boost to spending among older, wealthier households driven by the positive wealth effect from a buoyant stock market,” Pearce wrote in an investor’s note, noting the top 20% of households by income represent 40% of the total spending.

According to the BEA, the leading contributors to consumer spending were in health care and international travel. Among imports, goods saw a decrease while services saw an increase.

Other numbers in the GDP report indicate consumers are running on fumes. The disposable personal income — the measure of how much money consumers have after paying taxes and other mandatory expenses — shrank to 2.8% last quarter, the lowest it has been since the first quarter of 2022.

Business investment also slowed to 2.5%, annualized, Ashworth noted. “At face value, that suggests the [artificial intelligence] boom might have taken a step backwards, after driving GDP growth in the first half of the year,” he wrote.

Experts also say tariffs skew GDP numbers. In the first quarter of this year, a number of companies accelerated their purchasing to get ahead of the import taxes on certain goods, which depressed GDP. Growth then picked up again as imports decreased in the second quarter.

Tariffs have fluctuated wildly over the past year as President Donald Trump has quickly imposed, changed, and revoked import taxes on various countries. Still, the effect has been notable in certain sectors. This week, Kentucky bourbon maker Jim Beam announced a pause to production at its main distillery in 2026.

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