Macro
US Economy Grows at 3.4% Pace in Third Quarter, Beating Forecasts as Inflation Gauges Diverge
Inventories, equipment and consumer spending drove faster growth, while quarterly price measures cooled even as September PCE inflation picked up.
By Noris Ortiz ·
The U.S. economy expanded faster than expected in the third quarter, according to government data released Thursday morning, adding to the picture of resilient growth that has kept Federal Reserve officials focused on inflation rather than on supporting activity.
Real gross domestic product rose at an annual rate of 3.4% in the July-to-September period, the Bureau of Economic Analysis said in its advance estimate, released at 8:30 a.m. ET [1]. That was an acceleration from 2.2% in the second quarter [1] and above the 3.1% pace economists had expected [2]. In current dollars, GDP grew at a 5.6% rate [1].
The largest boost came from investment, led by a buildup in private inventories at wholesalers and manufacturers [1]. Business spending on equipment also rose, driven by information processing equipment, a category that includes the computers and servers tied to the data-center buildout [1]. Consumer spending increased for both services, led by health care and by food services and accommodations, and for goods, led by prescription drugs [1].
Government spending added to growth as well, mainly through federal nondefense consumption, which the agency partly attributed to smaller sales of crude oil from the Strategic Petroleum Reserve than in the prior quarter [1]. Trade was a drag: exports fell, led by petroleum products, while imports rose [1].
A measure of underlying private demand that strips out inventories, trade and government, real final sales to private domestic purchasers, rose at a 4.9% rate, up from 4.6% in the second quarter [1].
The inflation picture was less clear-cut. On a quarterly basis, the price index for personal consumption expenditures rose at a 2.1% annual rate, sharply slower than 5.0% in the second quarter, and the core index excluding food and energy slowed to 2.5% from 3.3% [1]. The broader gross domestic purchases price index rose 3.0%, down from 5.6% [1].
Monthly data pointed the other way. The PCE price index rose 3.6% in September from a year earlier, up from 3.4% in August, while core PCE rose 3.1% year over year and 0.3% from August, compared with a 0.2% monthly gain the month before [2]. The difference reflects timing: the quarterly figures compare average price levels across three months on an annualized basis, while the year-over-year readings capture the recent climb in prices, including energy.
For the Fed, the combination of above-trend growth and year-over-year inflation well above its 2% goal keeps pressure on policymakers. The central bank left its benchmark rate in a 3.75% to 4.00% range on Wednesday [3], with two officials dissenting in favor of an increase [2].
Markets took the data in stride. The 10-year Treasury yield was around 4.997% shortly after noon ET, down about 5 basis points on the day, as stocks were pulled lower by a selloff in technology shares tied to earnings [2].
What to watch next: the BEA's second estimate of third-quarter GDP, which will also include corporate profits, is scheduled for November 25 [1]. Investors will be watching whether inventory building, the single biggest contributor this quarter, reverses in the months ahead, and whether the monthly inflation data continue to firm as energy prices stay elevated.
Sources:
[1] U.S. Bureau of Economic Analysis, "GDP (Advance Estimate), 3rd Quarter 2026", October 29, 2026. https://www.bea.gov/news/2026/gdp-advance-estimate-3rd-quarter-2026
[2] Yahoo Finance, "Stock market today: Dow, S&P 500, Nasdaq fall as Alphabet stock sell-off drags on tech, AI jitters return", October 29, 2026. https://finance.yahoo.com/markets/live/stock-market-today-thursday-october-29-dow-sp-500-nasdaq-alphabet-microsoft-earnings-130305714.html
[3] TheStreet via Yahoo Finance, "Stock Market Today (Oct. 29, 2026): S&P 500 falls on Alphabet earnings miss", October 29, 2026. https://finance.yahoo.com/markets/stocks/articles/stock-market-today-oct-29-134623155.html
This article was produced with AI assistance. It is for informational purposes only and is not financial advice. StockVolt and its authors may hold positions in securities mentioned.