United States: Real GDP Growth Hotter Than Expected

It’s been nearly two months since we’ve been waiting for this first estimate of third-quarter national accounts. The federal shutdown and delays in publishing source data caused this long wait. But it was worth it. While we anticipated solid growth similar to spring’s performance, the 4.3% gain far exceeded our expectations and those of the consensus. This annualized increase is the strongest since the third quarter of 2023.

A significant share of the growth came from the resilience of final domestic demand, particularly real consumption, which advanced 3.5%—more than the 2.7% gain previously estimated two weeks ago when September data were released. Service consumption was especially robust, rising 3.7%, the fastest pace in three years.

Investment also contributed, though its increase was less spectacular than in the previous quarter. The boost from artificial intelligence appears to be losing steam, as software investment slowed to 3.1% after annualized gains of 18.8% in winter and 26.6% in spring. Growth in IT equipment investment remains strong at 8.4% annualized, but that’s still far below the 62.7% surge in the first quarter and 11.7% in the second. It will be interesting to see in coming quarters whether this signals a real trend shift and whether AI’s contribution to growth is returning to more normal levels.

As we’ve seen since the start of the year, external trade swings once again had a major impact on real GDP. This time, real exports rose—surprisingly, given the monthly data—while imports declined further. Net exports added 1.6 percentage points to real GDP growth, bridging much of the gap between that figure and the 2.9% annualized increase in final domestic demand. Government spending also picked up after two quarters of declines. A 5.8% jump in defense outlays more than offset another drop in non-defense federal spending.

Looking at these real GDP results, it’s clear that, to borrow President Trump’s words, the US economy was “hotter” last summer than many believed. This contrasts sharply with confidence indicators and business surveys that painted a more subdued picture. The resilience of growth also diverges from labor market weakness, suggesting US productivity remains strong. The question now is whether real GDP can maintain this momentum. We already expect slower growth in the final quarter of 2025, partly due to the shutdown and weaker auto sales. Conditions should improve early in 2026 as the effects of last summer’s tax changes become more apparent.

Real GDP growth remains vigorous in the United States despite uncertainty and other indicators pointing to a more modest outlook. These contrasting signals should prompt the Federal Reserve (Fed) to proceed cautiously, especially since GDP results are already somewhat dated. As we turn the page to a new year, let’s hope—along with the Fed—that the signals we receive from the US economy early in 2026 will help lift the remaining fog and bring greater clarity to the outlook.