Additional Coverage:
- The US economy grew faster in the third quarter — and most economists didn’t see that coming (marketrealist.com)
U.S. Economy Defies Expectations with Strong Q3 Growth, But Not Everyone is Cheering
Local residents might be feeling the pinch at the grocery store, but new data reveals the U.S. economy recently experienced its fastest growth in two years, largely fueled by robust consumer spending. This surge has surprised many economists who anticipated a more modest performance.
The Commerce Department reported a significant 4.4% annual increase in Gross Domestic Product (GDP) for the third quarter of 2025. This figure not only surpassed the initial projection of 4.3% but also outpaced the 3.8% growth seen in the previous quarter. According to the Bureau of Economic Analysis (BEA), this final GDP growth rate far exceeded the 3.3% economists had predicted.
After a slight contraction of 0.6% in the first quarter, the economy rebounded, demonstrating a clear upward trend. The overall annualized growth rate for the first three quarters of 2025 now stands at a healthy 2.5%, driven by increased consumer spending, exports, government expenditure, and investment. Notably, imports also saw a decline in the third quarter, further contributing to the positive economic picture.
Gregory Daco, chief economist at EY-Parthenon, attributed this strong GDP growth to several factors: resilient consumer spending, significant investments in AI and equipment, a boost from international trade, and a recovery in federal government spending. While acknowledging the economy is adjusting rather than overheating, Daco noted potential headwinds such as rising tariffs, decreased net migration, and uncertainty surrounding the Federal Reserve’s interest rate policy. He projects real GDP to increase by 3.2% in the fourth quarter of 2025, with an average growth rate of 2.3% for the entire year.
A deeper dive into household spending, which accounts for approximately 70% of economic activity, shows a 3.5% increase during the quarter. This includes a 3% rise in spending on commodities and a 3.6% jump in spending on services. However, purchases of durable goods, like cars and appliances, only saw a modest 1.6% increase, suggesting that consumers are still exercising caution with larger expenditures.
Despite these positive economic indicators, many Americans continue to express dissatisfaction with the economy, particularly in the face of persistent high living costs. This disconnect may point to a “K-shaped economy,” where higher-income households benefit from increased revenues while lower-income families grapple with stagnant wages and rising expenses.
The job market also presents a mixed picture, with only 28,000 new positions added each month since March, a stark contrast to the 400,000 seen during the post-COVID hiring boom. Nevertheless, a 4.4% unemployment rate indicates that businesses are largely retaining their existing staff, even if they are hesitant to expand their workforce.