Higher-income Americans lead spending while lower earners struggle
The U.S. economy grew at a 3.4% annual rate from July through September, the Commerce Department reported Thursday, picking up from a 2.2% pace in the previous quarter. Corporate investment in artificial intelligence and consumer spending drove the growth, according to the department’s report.
AI companies continued to build out data centers and spend heavily on developing the technology, a major driver of the third-quarter gain. Consumer spending, another big driver, was led in part by higher-income Americans who are better able to withstand stubbornly high inflation.
In level terms, real gross domestic product measured $24.4 trillion in the third quarter, according to FRED data from the Federal Reserve Bank of St. Louis as of Oct. 29.
The sturdy figures arrive days before the midterm elections, at a moment when many Americans say they feel gloomy about the economy. Inflation has pushed up the cost of day-to-day necessities, and the ongoing conflict with Iran has driven up energy costs such as gasoline.
Consumer spending has been growing steadily, but it has not spread evenly across households. Lower-income Americans are struggling more than high earners, and wage growth has fallen behind inflation, further squeezing many families.
Siri Steven, a manager at a resale store in Decorah, Iowa, says she and her husband are putting off fixing up their more than 130-year-old house.
“We barely go out to eat now,” Steven said. “I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft.”
Steven said her family has not been able to save and is going paycheck to paycheck. The personal saving rate fell to 3.8% in September, down from 4.1% in August, according to a separate Commerce Department report.
Prices rose 3.6% in September from a year earlier, according to the same report, faster than the Federal Reserve’s 2% target. The Fed watches the Commerce Department’s inflation measure closely when deciding what to do with its benchmark interest rate.
The central bank decided against raising rates Wednesday. Thursday’s price reading added pressure to raise rates at the next meeting in December.
Mark Zandi, chief economist at Moody’s Analytics, warned that despite the solid GDP figures, economic growth feels delicate because businesses and consumers have to navigate Trump administration policies, including tariffs and the conflict with Iran.
“We’re growing,” Zandi said. “The economy is moving forward but it’s a very, very fragile growth. It doesn’t feel like we’re kicking it in on all cylinders.”
Economists also have expressed concern about the country’s long-term fiscal health.