US economy expands 3.4% in third quarter as inflation rises

The United States economy grew faster than expected in the third quarter, even as price increases accelerated in September. According to Commerce Department data released Thursday, gross domestic product grew at an annualized rate of 3.4%. That reading topped forecasts of 3.1% and marked a solid increase from the 2.2% growth rate recorded in the second quarter.

Spending and AI investment drive expansion

Robust activity across several sectors helped push the headline growth number higher. Consumer spending climbed 3.8% in the third quarter, matching the rate seen in the previous period. For September alone, consumer spending increased by 0.5%, while personal income gained 0.2%.

Business investments also surged. Gross private domestic investment jumped 19.4% during the quarter. This was fueled by a 20.9% jump in equipment spending and an 8.4% rise in intellectual property products, supported in part by investments in artificial intelligence infrastructure. Real sales to private domestic purchasers, a metric policymakers watch to gauge underlying domestic demand, rose 4.9%.

Inflation quickens as labor market stays tight

Despite steady economic expansion, inflation remained above the Federal Reserve’s 2% target. The personal consumption expenditures price index rose 0.5% in September, bringing annual inflation to 3.6%. Higher energy expenses led the monthly spike, with gasoline and energy goods gaining 9.2%.

Core PCE, which excludes volatile food and energy costs, rose 0.3% for the month and 3.1% year-over-year. Services prices excluding energy and housing increased by 0.4%, while housing costs moved up 0.3%. Over the full third quarter, headline PCE prices increased 2.1% and core prices rose 2.5%, both lower than their second-quarter rates.

Meanwhile, the labor market showed continued resilience. A separate Labor Department report showed initial jobless claims dropped to 194,000 for the week ended October 24. The figures arrived just after central bank officials held the benchmark interest rate between 3.75% and 4%.