The initial report on the United States gross domestic product (GDP) for the third quarter revealed a notable acceleration in economic expansion. According to data published by the Commerce Department on Tuesday, the economy grew at an inflation-adjusted annualized rate of 4.3%, surpassing the 3.8% growth rate recorded in the second quarter. This marks the fastest rate of growth in two years, signaling a stronger-than-anticipated economic performance during this period.
Central to this stronger GDP growth was a notable increase in consumer spending and export activity. Consumer spending rose by 3.5% for the quarter, an increase from the 2.5% pace seen in the prior quarter, signifying stronger household consumption as a growth driver. Exports showed an even more pronounced improvement, climbing by 8.8% in the third quarter, a reversal from the 1.8% decline experienced during the second quarter. These two components collectively contributed substantially to the reported GDP figures.
Federal government spending also played an important role in boosting economic output. The Commerce Department data indicated sizable contributions stemming from elevated defense expenditures alongside payments made to federal workers. These increased outlays are part of broader federal efforts aimed at eventually reducing government spending, reflecting deliberate fiscal policies with impactful short-term effects on GDP.
Looking ahead, the upcoming fourth-quarter GDP report, due next month, is anticipated to face headwinds related to federal spending cuts. The recent 43-day US government shutdown is expected to exert a downward influence on government expenditures, likely dampening overall economic growth in the final quarter of the year.
President Donald Trump attributed the positive GDP numbers partially to his administration’s significant increase of tariffs during the third quarter. He highlighted these measures as being responsible for the ‘‘great USA economic numbers just announced’’ and expressed optimism that the economy would continue improving. However, a pending Supreme Court case introduces uncertainty, as it could potentially invalidate many tariff measures and necessitate substantial refunds to importers, thereby impacting trade dynamics.
In his social media statements, the President emphasized the tariffs' role not only in bolstering economic growth but also in avoiding inflation and enhancing national security. He called for positive outcomes from the Supreme Court case, reflecting the administration's confidence in the trade policy’s economic benefits.
Meanwhile, the Federal Reserve’s course of action may be influenced by this data. President Trump has frequently urged the central bank to reduce interest rates to stimulate economic activity. Yet, the robust GDP report released Tuesday could diminish the Federal Reserve’s impetus to implement rate cuts when it convenes next month, potentially leading to a more cautious monetary policy stance.
Beyond the aggregate GDP figures, the economic landscape exhibits mixed signals. The comprehensive GDP report offers a high-level view demonstrating solid footing in the economy. However, a closer examination reveals significant disparities. Consumer spending growth has been predominantly driven by higher-income households, while lower- and middle-income consumers exhibit more guarded behavior, reflecting a bifurcated or ‘‘K-shaped’’ economic recovery.
James Knightley, chief international economist at ING, characterized the current economy as ‘‘K-shaped’’ in a note issued Tuesday following the GDP release. He explained that growth is concentrated among affluent households and investment led by technology sectors, whereas broader consumer confidence remains subdued under ongoing pressures. This divergence highlights uneven participation in the economic upswing.
Supporting this insight, data published less than two hours after the GDP report by the Conference Board indicated a significant decline in consumer confidence during December. The index fell by 3.8 points compared to November, reaching 89.1, a level not seen since April. This drop coincides with the implementation of President Trump’s so-called ‘‘Liberation Day’’ tariffs, suggesting potential sentiment impacts stemming from trade policies.
The confidence report also found that consumers’ assessments of their current family financial circumstances dipped into negative territory, a first in nearly four years. Across income groups, apprehension about the labor market intensified. Reported unemployment recently hit a four-year peak, and the proportion of individuals perceiving jobs as plentiful reached its lowest point in four years.
Compounding these concerns, for the first time since September 2024, business sentiment turned negative on net regarding the economic outlook. Collectively, these indicators paint a more complex picture behind the generally positive GDP growth, underscoring challenges and unevenness within the overall economic environment.