U.S. Economy Grows at 3.4% Pace in Third Quarter, Fastest in a Year, on AI Investment Boom and Steady Spending

WASHINGTON, Oct. 29 (TodayViralUSA) — The U.S. economy grew at a 3.4% annual rate in the third quarter, its fastest pace in a year, as heavy business investment in artificial intelligence and steady consumer spending outweighed a sharp drag from trade, the Commerce Department reported Thursday.

The advance estimate from the Bureau of Economic Analysis showed growth accelerating from a 2.2% pace in the April-to-June quarter and topping the roughly 3.2% economists had forecast. The report is the last major reading on the economy before Tuesday’s midterm elections.

AI spending leads the way

Business investment was the standout. Private domestic investment jumped 19.4%, with spending on equipment up 20.9%, led by computers and related hardware tied to the data-center build-out. Investment in intellectual property products rose 8.4%, and spending on structures climbed 5.4%.

Consumer spending, the largest part of the economy, rose 3.8%, matching the prior quarter, with services up 4.1% and goods up 3%. Government spending rose 5.3% after a slight dip in the spring, and a buildup in business inventories added about 1.6 percentage points to growth.

Not every sector shared in the gains. Residential investment fell 3.3% as home sales and construction weakened. Exports dropped 5.7% while imports surged 19.7%, and trade subtracted about 3.3 percentage points from the headline figure, according to TD Economics.

Inflation picture

A key measure of underlying demand, real final sales to private domestic purchasers, rose 4.9%. The personal consumption expenditures price index rose at a 2.1% annual rate in the quarter, down from 5% in the second quarter, while the core index, which excludes food and energy, rose 2.5%.

Even so, many households say their budgets remain stretched. Consumer prices were up 3.7% in September from a year earlier, and wage growth has lagged inflation, NPR reported, with higher-income Americans accounting for an outsized share of spending.

Questions about durability

Some economists cautioned that the headline number may overstate the economy’s underlying strength because so much of it rests on AI-related investment, Reuters reported. Technology companies have borrowed heavily to fund data centers whose long-term payoff remains uncertain.

The Federal Reserve on Wednesday held its benchmark rate in a 3.75% to 4% range while saying inflation “remains elevated,” and Fed Chair Kevin Warsh told reporters that economic activity is “expanding at a strong pace.” TD Economics said it expects growth to cool to around 2% through the end of the year.

Thursday’s figure is an early estimate and will be revised twice as more complete data comes in.