The U.S. economy expanded by 3.4% quarter-on-quarter (q/q, annualized) in the third quarter, accelerating from 2.2% in Q2. The reading was in line with consensus.
Consumer spending rose by a healthy 3.8% q/q, matching Q2’s gain. Goods and services spending recorded solid gains, rising 3.0% and 4.1% respectively.
Business investment was also strong, with outlays surging by 12.7% q/q. Outside of the pandemic, this was strongest quarterly gain since 2011. Gains were widespread, with equipment spending (+20.9%), intellectual property products (+8.4%) and structures (+5.4%) all higher in the quarter. Meanwhile, residential investment (-3.3%) declined, reflecting weaker sales and construction activity.
Government spending (+5.3%) rose sharply, amid a sharp increase in federal spending on both defense (+11.7%) and non-defense (+22.2%).
International trade shaved 3.3 percentage points (pp) from growth in Q3, as imports (+19.7%) surged while exports (-5.7%) more than reversed Q2’s gain. Import growth was entirely concentrated in goods, while services were marginally lower. Offsetting some of the drag from trade, inventory investment added 1.6pp to growth.
Final sales to private domestic purchasers, a better gauge of underlying demand as it includes only household consumption and fixed investment, rose by a very healthy 4.9%, following a gain of 4.6% in Q2.
Core PCE inflation rose 2.5% q/q (annualized), a deceleration from Q2’s 3.3%.
Key Implications
The U.S. economy delivered a very healthy third quarter, expanding at its fastest pace in a year on solid consumer spending and business investment. AI-related capital expenditures remained a key growth driver, reflecting an acceleration in data center construction and a pick-up in complementary infrastructure, including power and electricity. However, spending on industrial and other equipment as well as oil & gas infrastructure also recorded solid gains, supporting the view that the investment boom isn’t only an AI story.
Elevated energy prices and higher interest rates continue to pose near-term headwinds for the outlook. But with financial conditions still broadly accommodative, AI-related investment showing no signs of slowing, and consumer spending entering Q4 with decent momentum, we expect growth to remain near 2% through year-end.
