US Economy Grows 3.4% as Consumer Spending and AI Investment Rise

The U.S. economy grew at a 3.4% annual rate from July through September, accelerating from the spring as consumer spending and investment in artificial intelligence outweighed pressure from higher energy costs.

The Commerce Department’s advance estimate, released Thursday, showed growth rising from a 2.2% annual rate in the second quarter. The third-quarter figure exceeded the 3.2% pace forecast by economists polled by Reuters, according to The Guardian. Their estimates had ranged from 1% to 4.2%.

The report arrived less than a week before Tuesday’s midterm elections, which will determine control of Congress. Strong overall growth contrasts with Americans’ downbeat assessment of the economy. Inflation has raised the cost of everyday necessities, while the conflict with Iran has pushed up energy prices.

Businesses’ spending on AI was a major contributor to growth. AI companies continued to build data centers and invest in developing the technology. But some economists questioned whether that investment gave a full picture of the economy, The Guardian reported. Investors are paying closer attention to the rising cost of long-term AI projects whose payoff remains uncertain, and tech companies have borrowed heavily over the past year to fund such spending, according to the newspaper.

Consumer spending, which accounts for more than two-thirds of the economy, grew at a 3.8% annual rate in the third quarter, matching its second-quarter pace, The Guardian reported. Historically low layoffs and moderate hiring have helped support purchases, the newspaper said. That spending has not been evenly distributed: Higher-income Americans have been better able to withstand inflation, while lower-income households face greater strain. Wage gains have at times lagged rising prices.

Siri Steven, a manager at a resale store in Decorah, Iowa, told NPR that she and her husband have put off repairs to their more than 130-year-old house. “We barely go out to eat now,” she said. “I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft.” Her family has been unable to save, she said, and is living paycheck to paycheck.

The personal saving rate fell to 3.8% in September from 4.1% in August, according to a separate Commerce Department report cited by NPR. Prices rose 3.6% in September from a year earlier, above the Federal Reserve’s 2% target. The Fed left its benchmark interest rate unchanged Wednesday, in a range of 3.75% to 4%, while acknowledging that inflation “remains elevated.” The Guardian reported that economists expected the Fed to raise rates in December.

Fed Chairman Kevin Warsh said “economic activity is expanding at a strong pace” and that domestic spending has remained resilient despite uncertainty tied in part to geopolitical developments, according to The Guardian. Mark Zandi, chief economist at Moody’s Analytics, offered a more cautious assessment to NPR: “We’re growing. 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.”