The US economy expanded at the fastest pace in two years as wealthier Americans kept spending
By Elisabeth Buchwald, CNN
(CNN) — An initial reading of third-quarter gross domestic product showed the US economy expanded at an inflation-adjusted annualized rate of 4.3%, a far faster pace than the 3.8% recorded in the second quarter, according to Commerce Department data released Tuesday. That’s the fastest growth rate in two years.
An acceleration in consumer spending, up 3.5% from 2.5% in the second quarter, and exports, up 8.8% from -1.8% in the second quarter, were the main contributors to the third-quarter GDP reading.
Federal spending also played a sizable role, a reflection of the large uptick in defense spending as well as buyouts for federal workers, part of efforts to ultimately lower government spending. The fourth-quarter GDP report set to be released next month, however, is expected to be negatively impacted by a drop in federal spending resulting from the 43-day government shutdown.
President Donald Trump said Tuesday the report was a reflection of his sweeping tariffs, which he increased substantially during the third quarter. However, a pending Supreme Court case could nullify many of the tariffs he’s enacted and potentially result in large refunds to importers.
“The TARIFFS are responsible for the GREAT USA Economic Numbers JUST ANNOUNCED…AND THEY WILL ONLY GET BETTER!” Trump wrote on his social media platform. “Also, NO INFLATION & GREAT NATIONAL SECURITY. Pray for the U.S. Supreme Court!!!”
While Trump has frequently pushed for the Federal Reserve to lower rates in order to boost the economy, Tuesday’s report likely gives the central bank even less reason to cut rates when it reconvenes next month.
A mixed economic picture
The GDP report is akin to a bird’s-eye view of the economy. From that perspective, the economy looks like it’s on solid footing. But zooming in further reveals a less rosy view.
While wealthy Americans continue to drive much of the growth in consumer spending, lower- and middle-income consumers have been much more cautious. Economists call that phenomenon a “K-shaped” economy.
“The K-shaped economy is staring us right in the face,” James Knightley, chief international economist at ING, said in a note on Tuesday following the release of the GDP report. Economic growth, he said, is “concentrated among higher-income households and tech-led investment, while broader consumer confidence remains under pressure.”
Less than two hours after the GDP report was released, the Conference Board reported consumer confidence declined substantially this month, down 3.8 points from November. The December reading of 89.1 was the lowest since April, when Trump introduced his “Liberation Day” tariffs.
The report showed that consumers’ views of their family’s current financial situation dipped into negative territory for the first time in nearly four years.
Consumers across all income levels also expressed more concern about the state of the labor market, with the unemployment rate recently hitting a four-year high. The share of those who said jobs are plentiful fell to the lowest level in four years. Meanwhile, for the first time since September 2024, businesses reported a net negative view of the economy.
The-CNN-Wire
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