The U.S. economy expanded at a faster-than-expected pace in the third quarter, fueled by robust consumer spending, though economists caution that growth momentum is weakening amid higher living costs and the lingering impact of a prolonged government shutdown.
According to an initial estimate released Tuesday by the Commerce Department’s Bureau of Economic Analysis, gross domestic product (GDP) rose at a 4.3% annualized rate in the third quarter, up from 3.8% in Q2. The reading exceeded economists’ expectations of 3.3%, based on a Reuters survey.
Consumer Spending Drives Growth
Consumer spending, the backbone of the U.S. economy, increased at a 3.5% pace, accelerating from 2.5% in the prior quarter. Much of that surge was attributed to a rush to purchase electric vehicles ahead of the September 30 expiration of federal tax credits.
However, this boost appears temporary. Motor vehicle sales declined in October and November, and spending across other categories showed mixed results, suggesting weaker demand heading into the fourth quarter.
Shutdown Clouds the Outlook
The GDP report was delayed by the 43-day government shutdown, rendering the data somewhat backward-looking. The Congressional Budget Office (CBO) estimates the shutdown could reduce fourth-quarter GDP by 1.0 to 2.0 percentage points, with $7 billion to $14 billion in lost output unlikely to be recovered.
A K-Shaped Economy Emerges
Economic surveys indicate that higher-income households are driving consumption, benefiting from rising equity markets that have boosted household wealth. In contrast, middle- and lower-income consumers are under pressure from higher prices tied to President Donald Trump’s sweeping tariffs, contributing to what economists describe as a K-shaped economy.
A similar divergence is emerging among businesses. Large corporations have largely absorbed tariff-related cost increases and continue to invest heavily in artificial intelligence, while small businesses struggle with rising input costs.
Rising Costs and Policy Uncertainty
Households are also contending with higher utility bills, as rapid growth in AI and cloud computing data centers drives electricity demand. Looking ahead, some consumers face sharp increases in health insurance premiums in 2026, further weighing on affordability.
Earlier this month, the Federal Reserve cut its benchmark interest rate by 25 basis points to a 3.50%–3.75% range, but policymakers signaled that further rate cuts are unlikely in the near term until there is greater clarity on inflation and labor market conditions.
Bottom Line
While the third-quarter GDP figures highlight the economy’s underlying resilience, structural pressures—rising costs, uneven growth, and policy uncertainty—are eroding forward momentum, raising questions about sustainability as 2026 approaches.
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