U.S. Economy Surges 4.3% in Third Quarter, Marking Fastest Growth in Two Years

The U.S. economy delivered a surprisingly strong performance in the third quarter of 2025, with gross domestic product (GDP) expanding at a 4.3% annualized rate — the fastest pace in roughly two years. The Bureau of Economic Analysis released the delayed report on December 23, revealing that growth significantly exceeded most forecasts and reflected broad contributions from consumer spending, exports, and government outlays.

For the months of July through September, economists had anticipated growth that was more moderate, with consensus forecasts typically ranging between 3 and 3.5%. The 4.3% figure not only blew past those estimates but also improved upon the 3.8% pace recorded in the second quarter. The strong result comes despite a 43-day federal government shutdown earlier in the fall that delayed several data releases, including this GDP report.

The shutdown’s effects are expected to depress economic activity in the final quarter of the year, with estimates from the nonpartisan Congressional Budget Office suggesting potential GDP losses of 1 to 2 percentage points in Q4.

Strong consumer spending, which accounts for roughly 70% of total economic activity, was a major factor in the expansion. Personal consumption expenditures accelerated to an annualized 3.5% rate in the third quarter, up from about 2.5% in the prior period. Services like healthcare and travel saw an increase in consumer spending, but some goods, like automobiles, saw variation due to temporal incentives like expiring tax credits.

Household demand has proved resilient even in the face of persistent cost-of-living pressures. Data indicate that higher-income groups have been more insulated from economic strain, while lower- and middle-income households face tightening budgets due to rising prices on essentials and utilities.

Another significant factor was the rise in exports, which increased at an annual rate of 8.8%, while the decline in imports artificially increased headline GDP figures by decreasing the trade deficit. Government spending also rebounded, driven by heightened local and federal defense expenditures after a period of contraction.

Private business fixed investment did help grow, but it did so at a lower rate than other components. Overall investment in equipment and intellectual property showed gains, but residential and nonresidential structures lagged, and some sectors retreated from earlier levels of activity.

Although the growth data reflected economic vigor, inflation has not fully cooled to the Federal Reserve’s desired target. The personal consumption expenditures (PCE) price index, which is the Fed's preferred indicator, increased by approximately 2.8% in the third quarter, and core inflation (excluding food and energy) was close to 2.9%, both of which were higher than the long-term goal set by the central bank.

Monetary policymakers have been cautious as a result of this persistent inflation. While the Fed cut interest rates three times toward the end of 2025 amid signs of labor market softness, officials signaled that further reductions remain uncertain and are closely tied to incoming data on prices and jobs.

Labor market indicators presented a more mixed picture than the robust GDP report. Job growth has slowed notably through 2025, with monthly gains well below levels seen earlier in the decade, and the unemployment rate nudging higher — reaching around 4.6% in November, its highest since 2021.

Economists describe the labor landscape as a “low hire, low fire” environment, where firms are reluctant to expand payrolls amid ongoing uncertainties about tariffs and borrowing costs, even as headline growth remains robust.

The unexpectedly strong third-quarter performance shows that the U.S. economy retains considerable resilience, particularly in consumer and trade activity. This momentum could sustain moderate expansion in 2026, especially if households benefit from tax refunds and tariff negotiations ease some cost pressures.

However, economists caution that the unusually high reading could prove temporary, partly reflecting timing effects — such as households bringing forward large purchases to avoid future price increases — and volatility from global trade adjustments. Combined with the lingering impact of the government shutdown, these factors inject uncertainty into forecasts for the coming year.

Overall, the U.S. economy performed better than expected in the third quarter, growing by 4.3 percent, highlighting the strength of consumer demand and trade contributions. However, as policymakers and markets look toward 2026, they must strike a balance between optimism and caution due to persistent inflation, labor market weakness, and fiscal disruptions.