Consumer spending holds firm despite high oil prices

Growth rate rises 1.2 percentage points from previous quarter

People walk past the New York Stock Exchange on Oct. 4 (local time). [Getty Images]
People walk past the New York Stock Exchange on Oct. 4 (local time). [Getty Images]

The US economy grew faster than expected in the third quarter, driven by a surge in AI-related investment and resilient consumer spending.

The Commerce Department announced Thursday (local time) that GDP expanded at an annualized rate of 3.4% in the third quarter compared with the previous quarter, topping the market forecast of 3.1%. The figure marks a 1.2-percentage-point increase from the second quarter's 2.2% growth rate and the strongest performance since the third quarter of last year, when the economy grew 3.9%.

Despite the oil price shock stemming from the Middle East war, businesses drove growth through expanded AI-related investment, while robust consumer spending — undeterred by elevated inflation — provided further support. The Commerce Department said investment, consumer spending and government expenditure all contributed to third-quarter GDP growth, while a decline in exports weighed on the overall rate.

Private domestic investment rose 19.4% in the third quarter, accelerating sharply from 4.6% in the prior quarter. Equipment investment was particularly strong, climbing from 13.4% in the second quarter to 20.9% in the third, with information-processing equipment such as computers and peripherals posting especially notable gains.

Personal consumption expenditures, which account for two-thirds of US economic activity, rose 3.8% in the third quarter, matching the second quarter's pace. Goods consumption slowed from 4.5% to 3.0%, but services consumption accelerated from 3.4% to 4.1%.

Government consumption expenditures and gross investment swung from a 0.1% decline in the second quarter to a 5.3% increase in the third. The Commerce Department said a rise in federal nondefense spending led the rebound in government outlays.

However, net exports — exports minus imports — dragged on third-quarter growth. Exports swung from a 5.0% increase in the second quarter to a 5.7% decline in the third, while the growth rate for imports rose from 12.6% to 19.7% over the same period.

Final sales to private domestic purchasers, a measure of the economy's underlying strength, rose 4.9% in the third quarter, up about 0.3 percentage points from 4.6% in the second quarter.

Andrew Husby, senior US economist at BNP Paribas, said the data showed the fundamental conditions of the US economy were "quite healthy." "It also reaffirms that AI infrastructure buildout and its positive spillover effects are supporting the economy," Husby added.


kate01@heraldcorp.com