GDP Surges to 3.4% as AI Spending Outpaces Consumer Caution

The U.S. economy expanded at an annual rate of 3.4% from July through September, the Commerce Department reported Thursday. This figure exceeds the 2.2% growth recorded in the previous quarter. The acceleration occurred just days before the midterm elections, creating a contrast between official output figures and the reported cost pressures faced by households.

Investments in artificial intelligence drove much of the third quarter gain. Companies continued spending heavily to build data centers and develop new technology. Consumer spending also contributed to the growth, particularly from higher-income Americans who can better absorb high prices. However, the data shows that spending has not spread evenly across all households. Lower-income families continue to struggle, and wage growth has lagged behind rising costs.

Inflation remained above the Federal Reserve's target. Prices rose 3.6% in September compared to the same period a year earlier. The central bank held interest rates steady on Wednesday. The decision adds pressure for a potential rate increase at the next meeting in December. The Fed monitors the Commerce Department's inflation data closely when setting its benchmark rates.

Siri Steven, a manager at a resale store in Decorah, Iowa, describes the squeeze on her family's budget. She and her husband have delayed repairs on their 130-year-old home. The couple has stopped dining out frequently to avoid overdrafts. "We barely go out to eat now," Steven said. "I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft." Her family lives paycheck to paycheck, a trend reflected in the national personal saving rate, which dropped to 3.8% in September from 4.1% in August.

Economists note that the strong growth coexists with underlying fragility. Mark Zandi, chief economist at Moody's Analytics, points to policy variables that complicate the outlook. These include tariffs and the U.S. conflict with Iran, which has raised energy costs. "We're growing," Zandi said. "The economy is moving forward but it's a very, very fragile growth. It doesn't feel like we're kicking it in on all cylinders."

The next scheduled event for the Federal Reserve is its December meeting. The central bank will review the new inflation data alongside other economic indicators to determine its next move on interest rates.