US Q3 GDP Surges 4.3% as Consumer Spending Fuels Growth Amid Persistent Inflation
Updated (2 articles)
Quarterly GDP Growth Beats Expectations The Commerce Department reported a 4.3% annualized increase in GDP for July‑September 2025, the fastest pace in two years and well above the 3% forecast from FactSet economists. This follows a 3.8% expansion in the April‑June quarter, indicating accelerating momentum. The robust output reflects broad-based activity despite lingering macro‑economic headwinds[1].
Consumer Spending Drives Majority of Expansion Household expenditures rose at a 3.5% annual rate in Q3, up from 2.5% in the prior quarter and accounting for roughly 70% of total economic activity. Spending on services contributed notably to the gains, underscoring the sector’s role in sustaining growth. Analysts credit resilient consumer confidence for offsetting inflation pressures[1].
Inflation Remains Above Federal Target The personal consumption expenditures (PCE) price index climbed to 2.8% in the third quarter, up from 2.1% a quarter earlier, while core PCE (excluding food and energy) stood at about 2.9%. Both measures sit above the Federal Reserve’s 2% inflation goal, raising concerns about future monetary policy tightening. Persistent price pressures could complicate the path to price stability[1].
K‑Shaped Recovery Highlights Wealth Disparities Economists describe the recovery as “K‑shaped,” with wealthier households driving most of the spending surge through stock‑market gains and investment income. In contrast, lower‑ and middle‑income families face slower wage growth and higher relative price burdens. Michael Pearce of Oxford Economics notes that older, affluent consumers are the primary engine of the current expansion[1].
Labor Market Shows Mixed Signals November payrolls added approximately 64,000 jobs, while the unemployment rate rose to 4.6%, the highest level since 2021. The labor market appears to be in a “low‑hire, low‑fire” state, influenced by tariff uncertainties and interest‑rate considerations. Forecasts suggest payroll growth will decelerate further in the coming months[1].
Timeline
Apr 2024 – Inflation peaks, marking the highest annual PCE rate recorded before a gradual easing begins, a benchmark referenced when September 2025 inflation reaches 2.8% [1].
May 2025 – Real‑adjusted consumer spending hits its lowest reading since this month, underscoring the fragility of household demand ahead of the Q3 rebound [1].
Q3 2025 (Jul‑Sep) – The economy expands at a 4.3% annualized pace, the strongest in two years, driven by a 3.5% surge in consumer spending; PCE inflation climbs to 2.8% (core 2.9%), and analysts note a “K‑shaped” recovery where “older, wealthier households [are] driving the gains,” says Michael Pearce of Oxford Economics [2].
Sep 2025 – The PCE price index rises 0.3% month‑over‑month, lifting the annual inflation rate to 2.8%, the highest level since April 2024 [1].
Sep 2025 – Core PCE inflation eases to a 2.8% annual rate after a 0.2% monthly gain, indicating modest relief in underlying price pressures [1].
Sep 2025 – Household spending growth slows to 0.3% month‑over‑month and is flat in real terms, the weakest real‑spending figure since May 2025 [1].
Sep 2025 – Inflation‑adjusted disposable income rises 0.1% month‑over‑month, a modest gain that still leaves many families tapping savings or credit [1].
Nov 2025 – Payrolls increase by about 64 k jobs while the unemployment rate climbs to 4.6%, the highest level since 2021, prompting economists to describe the labor market as “low hire, low fire” [2].
Early Dec 2025 – The University of Michigan’s preliminary consumer‑sentiment survey shows a 2.3‑point rise to 53.3, a modest improvement that remains near historic lows due to persistent price burdens [1].
Dec 2025 – Economists anticipate the Federal Reserve will cut its policy rate by 25 basis points at the upcoming meeting, despite inflation staying above the 2% target, reflecting confidence that the cooling labor market will ease price pressures [1].