Focus on the BIG picture.
Thursday, Dec 25, 2025
Outside the box.
U.S. Economy Grows at Fastest Pace in Two Years in Third Quarter, Driven by Strong Consumer Spending
Gross domestic product expanded at an annualized 4.3 percent rate, exceeding expectations, though momentum shows signs of fading amid rising living costs and a prolonged government shutdown.
The United States economy expanded at an annualized rate of 4.3 percent in the third quarter of 2025, marking its fastest pace of growth in two years and surpassing economists’ forecasts, according to data released by the Commerce Department’s Bureau of Economic Analysis.
The figure significantly exceeded expectations of around three percent growth and followed a 3.8 percent pace recorded in the previous quarter, highlighting resilient demand over the summer months.
Robust consumer spending was the principal driver of the strong performance, with households increasing consumption at a 3.5 percent annualized rate — the fastest pace in nearly a year.
Expenditure on services, including health care and international travel, rose sharply, while outlays on recreational goods and vehicles also contributed to the uptick.
Export growth and elevated government spending, particularly on defense, provided additional support to overall output.
Business investment remained solid, particularly in equipment and technology sectors, reflecting continued corporate confidence in long-term demand.
However, several components acted as drags on the headline figure: inventories and residential investment, which includes homebuilding and sales, contributed negatively to the overall calculation.
Analysts noted that the data release was delayed by the extended federal government shutdown, which also looks likely to dampen economic activity in the fourth quarter.
Rising costs of living and persistent inflationary pressures are weighing on consumer confidence, and some economists caution that the strong third-quarter performance may not be sustained.
Despite the headline strength, the labor market showed signs of cooling, with slower job creation and a modest rise in unemployment.
Some economists have described the current recovery as “K-shaped,” with higher-income households and larger corporations contributing disproportionately to growth, while middle- and lower-income families face tighter financial conditions.
Inflation measures remain above the Federal Reserve’s long-term target, complicating the central bank’s policy outlook.
The personal consumption expenditures price index, a key inflation gauge, rose during the quarter, underscoring persistent price pressures even as growth remains robust.
Policymakers and investors are now watching for signs of how the economy will perform in the final quarter of 2025 and into the new year, with many expecting slower growth as the effects of the shutdown and cost-of-living challenges take hold.
The figure significantly exceeded expectations of around three percent growth and followed a 3.8 percent pace recorded in the previous quarter, highlighting resilient demand over the summer months.
Robust consumer spending was the principal driver of the strong performance, with households increasing consumption at a 3.5 percent annualized rate — the fastest pace in nearly a year.
Expenditure on services, including health care and international travel, rose sharply, while outlays on recreational goods and vehicles also contributed to the uptick.
Export growth and elevated government spending, particularly on defense, provided additional support to overall output.
Business investment remained solid, particularly in equipment and technology sectors, reflecting continued corporate confidence in long-term demand.
However, several components acted as drags on the headline figure: inventories and residential investment, which includes homebuilding and sales, contributed negatively to the overall calculation.
Analysts noted that the data release was delayed by the extended federal government shutdown, which also looks likely to dampen economic activity in the fourth quarter.
Rising costs of living and persistent inflationary pressures are weighing on consumer confidence, and some economists caution that the strong third-quarter performance may not be sustained.
Despite the headline strength, the labor market showed signs of cooling, with slower job creation and a modest rise in unemployment.
Some economists have described the current recovery as “K-shaped,” with higher-income households and larger corporations contributing disproportionately to growth, while middle- and lower-income families face tighter financial conditions.
Inflation measures remain above the Federal Reserve’s long-term target, complicating the central bank’s policy outlook.
The personal consumption expenditures price index, a key inflation gauge, rose during the quarter, underscoring persistent price pressures even as growth remains robust.
Policymakers and investors are now watching for signs of how the economy will perform in the final quarter of 2025 and into the new year, with many expecting slower growth as the effects of the shutdown and cost-of-living challenges take hold.
