Higher gas prices and a war overseas have not slowed American shoppers or businesses, at least not yet. New government data show the economy accelerated over the summer.
The U.S. economy grew at a 3.4% annual rate in the third quarter, the Commerce Department said Thursday, Oct. 29, 2026, beating economists’ expectations and marking the fastest pace in a year. Economists surveyed ahead of the report had expected growth of about 3%. The second quarter’s growth rate was revised up to 2.2%.
What drove the U.S. economy in the third quarter?
Consumer spending, which makes up about 70% of the economy, rose at a 3.8% rate, matching the previous quarter. Spending on health care, restaurants and hotels helped lead the way. Consumer spending added about 2.5 percentage points to the overall growth rate.
Business investment also surged. Spending on equipment grew at a 20.9% rate, the fastest since 2020, driven largely by investment tied to artificial intelligence. Spending on software and other intellectual property also grew, reflecting companies’ push into new technology.
Companies rebuilding their inventories and higher government spending added to growth in the U.S. economy, while a jump in imports and a drop in exports weighed on it. Imports subtracted more than 2.5 percentage points from growth as businesses and shoppers bought more foreign goods.
Is the U.S. economy relying too much on AI?
Concerns have grown that the U.S. economy depends heavily on the AI boom. The latest report suggests growth is coming from several sources, including steady consumer spending and inventory building, not just technology investment.
Still, spending tied to AI was one of the biggest contributors, and some economists warn the economy could slow if that investment cools. Big technology companies have committed hundreds of billions of dollars to data centers and AI systems.
Are there warning signs?
Yes. A measure that strips out inventories and trade, considered a better gauge of underlying demand, grew at a slower 1.7% rate, down from 2.8% in the second quarter.
Inflation is also rising. The Federal Reserve’s preferred inflation gauge climbed to 3.6% in September from a year earlier, up from 3.4% in each of the previous two months, as higher oil prices tied to the war with Iran filtered through the economy. A measure that excludes food and energy rose 3.1%.
After adjusting for inflation, household income available to spend fell 0.3% in September, and consumer spending was flat, which could signal a slower fourth quarter. That suggests households may be stretching their budgets as prices rise.
What does this mean for the fourth quarter?
Early forecasts call for growth above 2% in the final three months of the year, driven by many of the same factors. The war with Iran, the path of oil prices and tariffs remain key risks.
The Federal Reserve will weigh the strength of the U.S. economy against rising prices as it decides on interest rates. Higher inflation could make officials more cautious about cutting rates.
Why does the U.S. economy report matter now?
The report arrived less than a week before the Nov. 3 midterm elections, where the cost of living has been a central issue. Strong growth gives Republicans a talking point, while Democrats point to rising prices squeezing families.
This is the government’s first estimate for the quarter, and it will be revised twice before the end of the year. Revisions can change the picture, as the second quarter’s figure showed.
For now, the U.S. economy appears to be holding up better than many expected, even as inflation remains a concern for households. The coming months will show whether the momentum lasts.
