US GDP Grows 3.4% in Q3, Driven by AI and High-Income Spending

The U.S. economy expanded at an annual rate of 3.4% from July through September, according to a report released Thursday by the Commerce Department. This marked an acceleration from the 2.2% pace recorded in the prior quarter. The growth figure was released days before the midterm elections.

Investments in artificial intelligence served as a primary engine for the third quarter. AI companies continued to spend heavily on developing technology and constructing data centers. Consumer spending also drove growth, with higher-income Americans leading the way. These households have shown greater resilience against persistent inflation.

Despite the aggregate growth, the benefits have not been evenly distributed. Lower-income households face greater financial pressure. Wage growth has lagged behind the cost of living, squeezing budgets for many families. The personal saving rate dropped to 3.8% in September, down from 4.1% in August, according to the same Commerce Department report.

In Decorah, Iowa, Siri Steven, a manager at a resale store, described the strain on her household. Her family is postponing repairs on their 130-year-old home and limiting dining out to manage cash flow. Steven stated that she must monitor their budget closely to avoid overdrafts. Her household operates on a paycheck-to-paycheck basis.

Inflation continues to outpace the central bank's goals. Prices rose 3.6% in September compared to the same month last year. This rate exceeds the Federal Reserve's 2% target. The Fed closely monitors these Commerce Department figures when setting its benchmark interest rates.

The Federal Reserve held interest rates steady on Wednesday. However, the recent price data adds pressure for a rate hike at the December meeting. Mark Zandi, chief economist at Moody's Analytics, characterized the current growth as fragile. He noted that businesses and consumers must adapt to administration policies, including tariffs and the conflict with Iran.

Zandi argued that while the economy is moving forward, it lacks momentum. He described the growth as delicate, stating that it does not feel like the economy is operating at full capacity.