A 3.4% GDP Boom Masks Inflation Heat and a Housing Slump
A 3.4% GDP Boom Masks Inflation Heat and a Housing Slump
The Commerce Department reported Thursday that U.S. gross domestic product grew at a 3.4% annualized pace in the third quarter, accelerating from 2.2% in the previous quarter and beating forecasts. Consumer spending rose 3.8%, while real sales to private domestic purchasers — a measure of underlying household and business demand — climbed 4.9%.
The strongest engine was investment, particularly the buildout around artificial intelligence. Gross private domestic investment jumped 19.4%, with equipment spending up 20.9% and intellectual-property investment up 8.4%. Information-processing equipment alone surged 37.4%, underscoring how heavily the quarter relied on computers and related capital spending.
That strength gave the bullish camp a clear argument: the economy has absorbed geopolitical uncertainty and higher energy costs better than expected. Chris Rupkey of Fwdbonds said growth was “powering ahead,” arguing that real GDP had returned above a 3% run rate for the first time in a year.
But Thursday’s releases also supplied the counterargument. September’s PCE inflation reading rose 0.5% for the month, lifting the annual rate to 3.6%; core PCE stood at 3.1%, still well above the Federal Reserve’s 2% goal. The Fed had held its benchmark rate at 3.75% to 4% the day before, with Chair Kevin Warsh saying the period ahead was “information rich.”
The vulnerabilities are clearest in housing and in the composition of growth. Residential investment fell 3.3%, while inventories contributed 1.6 percentage points to headline GDP. David Kelly of J.P. Morgan Asset Management called the housing market “haunted,” citing weak buyer traffic and declining homeownership among younger Americans.
The result is an economy expanding briskly on paper, with layoffs still low, but increasingly dependent on AI investment and consumer resilience as inflation and housing keep pressure on the outlook.
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