The U.S. economy expanded at a robust 4.3% annualized pace in the third quarter (July-September), significantly outpacing economists’ expectations of 3.2%, according to the Commerce Department’s initial GDP estimate released Tuesday.
The much-delayed report—originally slated for October 30 but postponed due to the historic 43-day government shutdown that ended in mid-November—paints a picture of resilient growth driven by strong consumer spending, surging exports, and increased government outlays. Personal consumption expenditures, which account for roughly 70% of economic activity, accelerated to a 3.5% gain in Q3, up from 2.5% in the second quarter and providing the primary impetus for the upside surprise. Exports posted a sharp rebound, while a shallower decline in private fixed investment—encompassing business spending on structures, equipment, and intellectual property—further bolstered the headline figure.
Government spending at the federal, state, and local levels also contributed meaningfully.
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This release serves as both the advance estimate for Q3 and a substitute for the second estimate previously scheduled for November 26, disrupted by the shutdown’s “statistical blackout.” The Bureau of Economic Analysis (BEA) will issue one final revision later, likely incorporating additional source data. A closely watched underlying metric, real final sales to private domestic purchasers—stripping out inventories, exports, and government spending to focus on core domestic demand—rose 3.0%, edging up 0.1 percentage point from Q2. Federal Reserve officials monitor this gauge intently as a purer signal of consumer and business vigor.
The report highlighted persistent inflation pressures despite the growth surge. The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, climbed 2.8% annualized in Q3, accelerating from 2.1% in Q2. The core PCE reading, excluding volatile food and energy components, advanced 2.9%, up from 2.6%. Both remain elevated above the central bank’s 2% target.
Additionally, the chain-weighted price index, which adjusts for consumer substitution toward cheaper alternatives, jumped 3.8%, a full percentage point above consensus forecasts and signaling broader price momentum. Corporate profits provided another bright spot, soaring by $166.1 billion (a 4.2% increase) in Q3, a dramatic turnaround from the meager $6.8 billion gain in Q2. After-tax profits with inventory and capital consumption adjustments reflected strong business earnings amid the expansion.
Financial markets showed muted reactions, viewing the data as backward-looking amid focus on forward indicators like the delayed November jobs report and ongoing tariff impacts. Stock futures traded slightly lower in pre-market hours, while Treasury yields held elevated, with the 10-year note around 4.35%. The Q3 strength—coming on the heels of 3.1% growth in Q2—positions the U.S. economy for a solid full-year 2025 performance, potentially around 2.8-3.0%, defying earlier recession fears tied to elevated interest rates. Consumer resilience, fueled by a tight labor market (unemployment steady near 4.1% pre-shutdown) and wage gains outpacing inflation, has underpinned the expansion.
However, the hotter-than-expected inflation readings complicate the Federal Reserve’s path, with policymakers having paused rate cuts in recent meetings while signaling vigilance on price pressures. Analysts noted the report’s release timing amplifies its significance amid policy transitions. With sweeping import tariffs beginning to pass through to consumers—estimated at 40% absorbed as of September, rising toward 70% by March 2026—the Q4 outlook introduces caution.
Pantheon Macroeconomics highlighted tariff effects as a drag on future affordability, particularly for lower-income households. Overall, the data reinforces narratives of American exceptionalism in global growth, even as risks from trade policies, fiscal debates, and persistent services inflation loom into 2026. The BEA’s final Q3 revision, expected in late January, will provide further clarity before attention shifts to preliminary Q4 figures.
