The United States economy likely accelerated during the third quarter, fueled by robust consumer activity and significant AI-related investment. This growth helped mitigate the economic drag caused by rising oil prices resulting from Middle East conflicts.

How did the economy perform?

Economists surveyed by Reuters predict that the gross domestic product (GDP) grew at an annualized rate of 3.2% last quarter. This represents a notable increase from the 2.2% growth rate recorded during the April-June period. Several factors contributed to this upward momentum:

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  • Business Equipment: Spending on equipment saw its third consecutive quarter of double-digit growth, largely driven by the artificial intelligence boom.
  • Consumer Resilience: Despite concerns over food and energy costs, wage gains and a strong stock market supported steady spending.
  • Other Drivers: Increased inventories and spending on intellectual property products also bolstered the figures.

What are the primary risks?

While the outlook is positive, the expansion faces some headwinds. A widening goods trade deficit, caused by record-high imports of capital goods for AI, reportedly subtracted at least 4 percentage points from GDP growth. Additionally, investors are monitoring the high costs of long-term AI projects where the eventual financial return remains unproven.

Tech companies have borrowed substantial amounts to fund these initiatives, which could pose a risk to future equipment spending. However, Gregory Daco, chief economist at EY-Parthenon, noted that while there may be "more discretion when it comes to investment in AI," the fundamental momentum is expected to remain strong.

Why does this matter now?

These economic indicators arrive at a politically sensitive moment. The Commerce Department is scheduled to release its official advance estimate of third-quarter GDP this Thursday. This data release occurs less than a week before the midterm elections, which will decide the balance of power in Congress. The strong economic data stands in contrast to low consumer sentiment and declining presidential approval ratings.