US economy grew at brisk 3.4% pace in third quarter on strong consumer spending and AI investment

Driven by strong consumer spending and a surge in artificial intelligence investments, the U.S. economy expanded at a healthy 3.4% annualized pace between July and September, accelerating from the second quarter.Figures released Thursday by the Commerce Department show that third-quarter gross domestic product—measuring total output across goods and services—outpaced the 2.2% growth recorded from April through June. Household spending increased at a swift 3.8% rate while business investment climbed sharply amid the boom in AI technology.The performance demonstrates the ongoing resilience of the world’s largest economy, despite higher energy costs brought on by fighting with Iran. Growth surpassed expectations, topping the 3% expansion projected by forecasters in a survey by data firm FactSet.Commercial investment, excluding housing, rose 12.7% as growth was lifted by AI spending. Capital outlays on information processing equipment jumped 37.4%, software rose 9.6%, and research and development increased 7.5%. Conversely, residential investment, constrained by high mortgage rates, fell 3.3%, marking its sixth decline in the last seven quarters.Thursday’s report represents the first of three Commerce Department estimates regarding third-quarter GDP growth.Inflation heats up again days before midterm electionsInflation data was also released on Thursday. An inflation gauge closely monitored by the Federal Reserve accelerated last month, showing that prices remain elevated less than a week before midterm elections in which affordability concerns have become a central issue.Consumer prices rose 3.6% in September from a year earlier, the Commerce Department said Thursday, up from 3.4% in August. On a monthly basis, prices climbed 0.5%, up from 0.3% in August and the highest figure since May.Annual inflation has worsened since the Iran war caused spikes in oil and gas prices. U.S. oil prices still top $100 a barrel, up from less than $70 before the war. Polls show that the rise in inflation has soured most voters on the economy and President Donald Trump's handling of rising costs. Trump campaigned in 2024 on lowering prices, including bringing the cost of gas below $2 a gallon. It currently averages about $4.25 a gallon nationwide.Excluding the volatile energy and food categories, inflation also picked up. It increased 3.1% from a year ago in September, up from 3% in August. And from August to September, core prices rose 0.3%, the same as the previous month.The reports come a day after the Federal Reserve, the agency tasked with combatting inflation, left its key interest rate unchanged. With inflation above the Fed's 2% target and the economy charging ahead, the central bank will remain under pressure to raise rates at its next meeting in December.Thursday's inflation data comes from the personal consumption expenditures price index, which typically echoes the better-known consumer price index published earlier this month. The Fed more closely monitors the PCE index because it puts less weight on housing prices and allows for changes in consumers' shopping habits.