US economic growth beats expectations in third quarter, but momentum fades

The US economy expanded at a faster-than-expected pace in the third quarter, powered by strong consumer spending, though signs are emerging that the momentum has weakened amid rising living costs and the impact of a prolonged government shutdown.

Gross domestic product grew at an annualised rate of 4.3% in the July-September period, according to the Commerce Department’s Bureau of Economic Analysis. That marked an acceleration from the 3.8% growth recorded in the second quarter and exceeded economists’ expectations of a 3.3% expansion, based on a Reuters poll.

The data, however, was released with a significant delay due to the 43-day government shutdown and is now considered dated. Consumer spending — the backbone of the US economy — rose at a 3.5% pace in the third quarter, up from 2.5% in the previous quarter.

A substantial portion of the spending surge was driven by a rush to purchase electric vehicles ahead of the September 30 expiry of federal tax credits. That boost proved short-lived, with motor vehicle sales falling in October and November, while spending in other categories showed mixed trends.

The nonpartisan Congressional Budget Office has warned that the government shutdown could shave between 1 and 2 percentage points off economic growth in the fourth quarter. While most of the lost output is expected to be recouped, the CBO estimates a permanent loss of $7 billion to $14 billion in economic activity.

High-income consumers drive spending

Recent surveys indicate that consumer spending strength is increasingly concentrated among higher-income households, buoyed by rising stock markets that have lifted household wealth. Middle- and lower-income consumers, by contrast, are feeling the strain of higher living costs, exacerbated by President Donald Trump’s broad tariff measures, economists said.

This divergence has given rise to what analysts describe as a “K-shaped” economy, where financial outcomes differ sharply across income groups. A similar pattern is visible among businesses: while large corporations have largely absorbed higher import costs and continue to invest heavily in artificial intelligence, smaller firms are struggling to cope with tariff-related pressures.

Economists say these trends are contributing to an affordability crisis that has begun to weigh on the president’s approval ratings. Households are also facing rising utility bills as the rapid expansion of AI and cloud computing data centres drives up electricity demand, while some consumers are bracing for sharp increases in health insurance premiums in 2026.

Against this backdrop, the Federal Reserve earlier this month cut its benchmark interest rate by 25 basis points to a range of 3.50% to 3.75%. However, policymakers signalled that further rate cuts are unlikely in the near term as they await clearer signals on the trajectory of inflation and the labour market.