The U.S. economy grew at a 3.4% annual pace from July through September, a sharp acceleration that exceeded forecasts of 3% and 3.2% and was powered by a surge in consumer spending alongside a historic wave of artificial-intelligence-related business investment. Consumer spending rose at a brisk 3.8% clip during the quarter, while businesses poured money into equipment and technology even as the housing market kept sliding.
Growth Outpaces the Second Quarter and Most Forecasts
The reading marks a notable jump from the 2.2% growth registered from April through June, according to the Durango Herald, which also reported that the figures come from the first of three Commerce Department estimates of third-quarter GDP growth. Forecasters were caught off guard by the strength of the number — economists surveyed by FactSet had expected 3% growth, while economists polled by Reuters had forecast a 3.2% pace, according to The Standard. That outlet also noted that estimates across the broader pool of forecasters ranged anywhere from 1.0% to 4.2%, underscoring just how unsettled projections had become heading into the report.
Business investment excluding housing jumped 12.7% in the quarter, and the category driving that surge was unmistakable: investment in information-processing equipment surged 37.4%, the Durango Herald reported, in a dataset that bore the clear fingerprints of the AI boom. Business investment overall was up sharply, reflecting that same boom, per the same outlet's reporting. Not every corner of the economy shared in the strength, though — housing investment dropped 3.3% and has now fallen in six of the last seven quarters, hurt by elevated mortgage rates.
Resilient Spending Offsets Oil-Price Pressure
The Standard reported that resilient consumer spending and AI-driven business investment more than offset the impact of higher oil prices tied to fighting in the Middle East, helping the broader economy absorb a cost pressure that might otherwise have dented growth. Historically low layoffs and moderate hiring are helping to underpin that spending, the outlet added, even though wage gains have at times lagged behind inflation.
The backdrop to the report includes a Federal Reserve that just delivered its own verdict on the economy's health. On Wednesday, the central bank left its benchmark interest rate in the 3.75%-4.00% range while acknowledging that inflation remains elevated, according to Investing.com. The decision came just a day before the GDP figures were released, putting the Fed's cautious stance on inflation directly alongside a growth number that beat expectations.
How Much of the Boom Is Really AI?
Some economists have questioned whether the headline GDP strength is giving an accurate picture of the broader economy, given how dominant AI-related spending has become and how uncertain the eventual returns on long-running AI projects remain, The Standard reported. Tech firms have also borrowed enormous sums over the past year to fund that spending, which The Standard flagged as a potential downside risk to equipment investment going forward if the borrowing binge cools.
Research from the Federal Reserve Bank of St. Louis offers some texture on just how large AI's footprint has grown inside the GDP figures. AI-related investment categories accounted for 11% of GDP growth in the third quarter of 2025, down from 30% the prior quarter, according to the St. Louis Fed. The contribution from software investment specifically fell to just 0.07 percentage points in that same quarter after reaching 0.57 percentage points the quarter before, the regional Fed bank found. Even with that volatility, AI-related categories made up 39% of total GDP growth through the third quarter of 2025 — well above the 28% share that comparable technology categories represented during the dot-com buildout of 2000, the St. Louis Fed reported, with those categories contributing 0.97 percentage points to growth compared with 0.81 percentage points from IT spending in 2000.
Looking ahead, forecasters are not expecting the current pace to hold. A survey of 32 forecasters conducted by the Philadelphia Federal Reserve projects the economy will expand at a 2.5% annual rate in Q3 2026 and 2.3% in Q4 2026 — a reminder that even a blockbuster GDP report built on AI investment and resilient consumers may prove hard to sustain.
