US economic growth surged in third quarter of 2025
- The San Juan Daily Star
- 5 minutes ago
- 4 min read
By TALMON JOSEPH SMITH
The U.S. economy grew at a vigorous pace through the end of September, despite the uncertainty created by tariffs and widespread concerns about affordability among households.
Economic growth rose at a 4.3% annual rate in the third quarter, the Commerce Department reported earlier this week, an acceleration from the previous quarter.
The third-quarter reading showed that, even in the face of negative consumer sentiment and a softening job market, the roughly $30 trillion economy started October on relatively solid footing as a whole, outperforming the bearish expectations of some experts only months before.
“It shows an economy that is mostly solid, actually still firing on most cylinders if not all cylinders, though I still think we have a lot of noise in the quarter-to-quarter data,” said Michael Pearce, chief U.S. economist at Oxford Economics. “Most of the strength is coming from wealthier households.”
Disposable personal income, after taxes and adjusted for inflation, was flat, a sign of nagging price increases still eating into purchasing power. Yet a barometer of underlying growth that measures both private investment and household consumption held firm, a signal of underlying strength.
Much of the growth in the third quarter came from military spending. Total corporate profits rose by $166 billion in the third quarter, compared with an increase of $6.8 billion in the previous quarter, a sharp improvement. But business investment, which has been fueled by the build-out of artificial intelligence systems, notably cooled.
Still, the economy has remained far more resilient than many economists had expected, particularly given President Donald Trump’s sweeping tariffs. Although tariffs have undoubtedly raised the costs of some goods, consumers have continued to spend. Consumption, which constitutes roughly 70% of the economic pie in a typical year, rose at a 3.5% annualized pace in the quarter.
“Even as consumption takes the reins back from investment, the economy maintains considerable momentum,” said Paul Ashworth, chief North America economist at Capital Economics.
Swings in the balance between exports and imports caused by global trade fluctuations induced by the Trump administration’s volatile tariff policies are also still having an impact on the data.
Earlier this year, companies rushed to front-run an oncoming cost increase from tariffs by loading up on products, sending imports surging. Once the tariffs went into effect, imports dropped off sharply while exports picked up. Such big swings in trade can skew the quarterly numbers, and economists say it will make more sense to look at the year overall.
The White House on Tuesday heralded the latest reading. In a series of posts on social media, the Council of Economic Advisers said that strong consumer spending in the third quarter evinced the public’s “confidence in the economy,” while the uptick in exports in recent months underscored how Trump’s policies had touched off “an export boom.”
Lower-income families are wrestling with slowing wage growth and rising costs of various household goods, like beef, coffee and furniture. But even as some major corporations have announced workforce reductions, the limited extent of overall layoffs is still buttressing activity. And much of consumption growth has come from spending by affluent and upper middle-class Americans, who have continued paying for travel, recreation, restaurants and other discretionary purchases.
Spending related to AI contributed to almost half of “year-over-year growth in GDP” in the first half of the year, according to estimates by Principal Asset Management. Most analysts expect that these investments are likely to persist. But the data from the third quarter shows that the trend may be lumpier than some have projected, as intellectual property investments decelerated compared with previous months. Other newly released numbers showed orders for durable goods also fell in October, even as an expansive build-out in data centers marches on.
The boom, which several skeptical financial analysts fear may transform into a bubble, has helped buoy broad-based gains in the stock market. The benchmark S&P 500 index has risen about 17% year-to-date and the tech-heavy Nasdaq index has performed even better, with gains of over 20%.
The consensus among experts is that growth in the fourth quarter and in 2026 will be positive, though likely less robust than the pace identified in the third quarter. Most major bank research teams expect growth to decelerate in the fourth quarter but remain steady in the new year — at a pace of about 2%.
“That is still a solid pace of growth,” Pearce said, “but potential growth has slowed as net immigration has declined rapidly.”
Still, the federal tax cuts passed by Congress this year and signed into law by Trump are expected to boost consumer spending in 2026.
The mood among the business community and investors is “definitely bullish,” said Rebecca Patterson, an economist and former chief investment strategist at Bridgewater Associates. That confidence is based on “a combo of monetary and fiscal stimulus, AI, deregulation, supportive financial markets and bank activity.”
Markets are also betting that the Federal Reserve, which has lowered interest rates moderately throughout this year, will persist with what analysts call an “accommodative” stance in 2026, further reducing rates to support the economy — particularly if further weakness is exhibited in the labor market.
Some worry, though, that interest rate cuts alone may not be enough to halt a possible slowdown, whether it stems from a panicked halt in AI investment or some other, unexpected shock.