The U.S. economy grew at a 3.4 percent annualized rate in the third quarter, the Commerce Department reported Thursday, picking up speed from the second quarter’s 2.2 percent pace and topping economists’ forecast of 3.1 percent growth.
The gain was driven largely by a jump in business investment, a swing in inventories, and steady consumer spending, even as a widening trade deficit tied to heavy tech-related imports subtracted sharply from the overall number.
Private investment contributed 3.27 percentage points to growth. Of that, business fixed investment added 1.78 points and a buildup in inventories added 1.61 points. A weak housing market partly offset those gains, as residential investment declined at a 3.3 percent annualized rate, subtracting 0.12 point from growth.
Consumer spending grew at a 3.8 percent annualized rate for the second straight quarter, contributing 2.52 percentage points to GDP — nearly matching its contribution in the prior quarter. Spending on services made up most of that increase, contributing 1.89 points, led by health care (0.56 point), restaurants and accommodations (0.41 point), and housing and utilities (0.34 point). Spending on goods added another 0.63 point, with durable goods slowing sharply from the second quarter.
Business Investment Stands Out
Nonresidential fixed investment — business spending on structures, equipment, and intellectual property — grew at a 12.7 percent annualized rate, the report’s standout figure.
Equipment investment alone surged at a 20.9 percent rate, adding 1.16 percentage points to growth. Computers and peripheral equipment contributed 0.72 point of that total, reflecting heavy spending on computing infrastructure. Other information-processing equipment added 0.14 point and industrial equipment added 0.27 point, while transportation equipment investment fell, subtracting 0.09 point.
Spending on intellectual property products, including software and research and development, grew 8.4 percent and added 0.47 point to growth. Investment in business structures rebounded as well, growing 5.4 percent after barely rising in the second quarter, adding 0.15 point.
Inventories and Government Spending
Changes in private inventories added 1.61 percentage points to growth, a sharp reversal from the second quarter, when inventories had subtracted 0.53 point.
Government spending grew at a 5.3 percent annualized rate, contributing 0.90 percentage point after contributing almost nothing the previous quarter. Federal spending accounted for nearly all of the increase, adding 0.91 point, split between defense (0.41 point) and nondefense (0.49 point) spending. The Commerce Department noted that part of the nondefense increase reflected an accounting effect from lower sales of oil from the Strategic Petroleum Reserve, which is offset elsewhere in the GDP calculation and does not affect total output.
Trade Deficit Weighs on Growth
International trade was the biggest drag on the headline number. Net exports subtracted 3.32 percentage points from growth, three times the 1.10-point drag recorded in the second quarter.
Imports rose at a 19.7 percent annualized rate overall, subtracting 2.64 points from GDP, while exports fell at a 5.7 percent rate, subtracting another 0.68 point. Imports of goods specifically rose at a 26.4 percent rate, with capital goods other than automobiles the largest contributor to the increase.
Because imports are subtracted from GDP even though they represent purchases by American businesses and consumers — including equipment used in the investment boom described above — the subtraction prevents foreign-made goods from being counted as domestic production.
A separate measure, real final sales to private domestic purchasers, which strips out inventories, government spending, and trade, grew at a 4.9 percent annualized rate — up from 4.6 percent in the second quarter and the fastest pace since the second quarter of 2021.
