The US economy expanded at a stronger-than-expected pace in the third quarter, according to a long-delayed government report that showed growth accelerating even as inflation pressures lingered and markets remained cautious.
Gross domestic product grew at an annualised rate of 4.3% between July and September, the Commerce Department said, exceeding the 3.2% forecast in a Wall Street Journal poll and rising from 3.8% in the previous quarter.
The report marks the first official estimate of third-quarter growth, released nearly two months late after a record-breaking federal government shutdown disrupted data publication schedules.
Consumer demand remains resilient
A key measure closely watched by Federal Reserve policymakers, real final sales to private domestic purchasers, rose 3% during the quarter, slightly higher than in the prior period.
The data suggests underlying consumer demand remained firm despite higher prices and tighter financial conditions.
The economy advanced even as inflation pressures persisted.
The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 2.8% in the quarter, while core PCE inflation, which excludes food and energy, climbed to 2.9%.
Both readings were higher than in the previous quarter and remained above the central bank’s 2% target.
Another inflation measure, the chain-weighted price index, rose 3.8%, a full percentage point above forecasts.
The index captures changes in consumer behaviour, such as switching between cheaper and more expensive goods, and underscores the breadth of price pressures during the period.
Markets take the data in stride
Despite the upbeat growth figures, financial markets showed little reaction, largely because the data was backwards-looking and released as the fourth quarter neared its end.
US stock futures edged lower, with futures tied to the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 all slipping about 0.2%.
Treasury yields held higher.
The strong GDP reading also prompted investors to reassess expectations for interest rate cuts.
Fed funds futures traders slightly increased their bets that the Federal Reserve would keep rates unchanged at its January and March meetings, according to CME FedWatch data, reducing expectations of an early-2026 rate cut.
Corporate profits surge
The report showed a sharp rebound in corporate profitability.
Corporate profits jumped by $166.1 billion, or 4.2%, in the third quarter, compared with a modest $6.8 billion increase in the previous quarter.
The surge suggests businesses were able to maintain margins despite higher costs, at least during the period covered by the report.
Mixed signals cloud the outlook
While the GDP figures painted a largely positive picture, other recent data have raised questions about the economy’s underlying strength.
The labour market has shown signs of cooling, with the unemployment rate rising to 4.6% in November, the highest level in more than four years.
Retail sales growth has slowed, even as higher-income households continue to spend.
Several retailers, including Home Depot, have reported weaker earnings and cautious outlooks, pointing to more uneven consumer demand.
Inflation remains above the Fed’s target, though November data showed consumer prices rose 2.7% year-on-year, less than expected.
Economists cautioned that the figure may have been distorted by data-collection challenges during the government shutdown.
Businesses are also grappling with uncertainty over how much of the cost of tariffs to pass on to consumers, complicating assessments of the full impact of former President Donald Trump’s trade policies on prices.
Dollar pares losses after GDP surprise
In currency markets, the US dollar trimmed earlier losses against major peers after the data release reinforced expectations that the Fed will pause rate cuts.
The dollar eased to 156.11 yen, still down 0.6% on the day, while the euro pared gains to $1.1786, up 0.2%.
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