Q3 GDP beats forecasts at 3.4%

The US economy expanded at a 3.4% annualized rate in the third quarter, outpacing the 3.2% growth projected by economists. The Bureau of Economic Analysis released this advance estimate on Thursday, less than one week before the midterm elections.

Resilient consumer spending and heavy business investment in artificial intelligence drove the growth. These factors more than offset the drag from higher oil prices caused by the conflict in the Middle East. The final figure landed in the middle of a wide forecast range that stretched from 1% to 4.2%.

This strong performance contrasts with public sentiment. President Donald Trump faces record-low approval ratings, and consumer confidence has dropped sharply. The economic data suggests the underlying activity is holding up even as voters express dissatisfaction.

The growth rate is well above the 2% pace that Federal Reserve officials consider non-inflationary. The central bank kept its benchmark interest rate in the 3.75% to 4% range on Wednesday. Officials noted that inflation remains elevated. Markets expect a rate hike in December.

Federal Reserve Chair Kevin Warsh told reporters that economic activity is expanding at a strong pace. He said domestic spending has been resilient despite uncertainty from geopolitical developments. The data shows the economy is growing faster than the Fed’s preferred target.

Consumer spending, which makes up more than two-thirds of the economy, rose at a 3.8% pace in the July to September period. This matches the growth rate from the second quarter. Low layoff rates and moderate hiring levels are supporting this consumption. However, wage gains have sometimes lagged behind inflation.

Households are saving less and drawing down savings to fund purchases. Average gasoline prices remain above $4 per gallon as the US-Israel war on Iran continues. Economists expect consumer spending to slow as these costs persist.