U.S. Economy Surges 4.3% in Q3: The Strongest Growth in Two Years

The U.S. economy delivered a stunning performance in the third quarter, expanding at a 4.3% annual rate—far exceeding the 3.2% economists had predicted and marking the fastest growth in two years.

The Commerce Department's report, originally scheduled for October 30 but delayed by the government shutdown, revealed an economy firing on nearly all cylinders despite elevated interest rates and persistent inflation concerns.

What Drove the Surge

Consumer spending, which accounts for roughly two-thirds of economic activity, accelerated to 3.5% growth from 2.5% in the second quarter. Americans continued to open their wallets for both goods and services, defying predictions that higher borrowing costs would finally crimp demand.

Exports provided an unexpected boost, jumping 8.8% after contracting 1.8% in the prior quarter. The weaker dollar through much of the year made American goods more competitive abroad, while strong demand from trading partners added momentum.

Government spending also contributed, reflecting both federal and state-level outlays that supported overall demand.

The Inflation Caveat

Not everything in the report was rosy. The personal consumption expenditures price index—the Federal Reserve's preferred inflation gauge—rose 2.8% during the quarter, with core inflation (excluding food and energy) hitting 2.9%. Both readings exceeded the prior quarter and remain well above the Fed's 2% target.

This presents a dilemma for policymakers: the economy is running hot, but so is inflation. The Fed's task of engineering a soft landing just got more complicated.

What It Means for Markets

The stronger-than-expected GDP reading supports the case for continued corporate earnings growth, which has underpinned the stock market's rally. However, it also raises questions about how aggressive the Fed can be with rate cuts in 2026.

Bond markets may see pressure as traders recalibrate expectations for monetary policy. A 4.3% growth rate doesn't scream "emergency rate cuts needed."

The Bottom Line

The U.S. economy proved more resilient than almost anyone expected in the third quarter. While the delayed data is somewhat stale—we're now well into Q4—it confirms that the foundation beneath the current expansion remains solid. For investors, the message is clear: don't bet against the American consumer.