U.S. Economy Grew at 3.4% Annual Pace in Third Quarter

The U.S. economy expanded at an annual rate of 3.4% from July through September, according to a report from the Commerce Department released Thursday. This marks a sharp increase from the 2.2% annual pace recorded in the prior quarter. The data lands days before the midterm elections, offering a statistical counterpoint to the pessimism many voters express about their personal finances.

Investments in artificial intelligence were a primary driver of the third quarter growth. AI companies continued to spend heavily on data center construction and technology development. Consumer spending also contributed heavily to the total, but the gains were concentrated among higher-income Americans. These households have shown greater resilience to persistent inflation, which continues to push up the cost of daily necessities.

For many other families, the economic picture is less favorable. Wage growth has lagged behind rising prices, squeezing household budgets. The personal saving rate fell to 3.8% in September, down from 4.1% in August. Siri Steven, a manager at a resale store in Decorah, Iowa, described her family's financial tightness. She and her husband are delaying repairs on their home, which is more than 130 years old.

Steven noted that she and her husband now rarely eat out. She said she must closely monitor their budget to ensure they can pay bills without overdrafting. Her family is currently living paycheck to paycheck, a common experience for lower-income households despite the broader GDP growth.

Inflation remains above the Federal Reserve's target. Prices rose 3.6% in September compared to the previous year. The central bank held its benchmark interest rates steady on Wednesday. However, the new price data adds pressure for a rate increase at its next meeting in December. The Fed closely monitors the Commerce Department's inflation figures when setting monetary policy.

Economists see vulnerabilities beneath the strong growth numbers. Mark Zandi, chief economist at Moody's Analytics, warned that the expansion feels fragile. He cited business and consumer efforts to manage around administration policies, including tariffs and the conflict with Iran, which has driven up energy costs. Zandi stated that while the economy is growing, it is not operating at full capacity.