US Economy Grows 4.3% in Third Quarter 2025 Amid Mixed Indicators
In the third quarter of 2025, the US economy grew at an annualized rate of 4.3%, marking its fastest pace in two years and surpassing economists' forecast of 3.2%. This growth followed a 3.8% increase in the second quarter. The expansion was fueled by gains in consumer spending, exports, and government spending, despite a decline in business investment and ongoing pressures in the housing market influenced by high interest rates.
Consumer spending rose 3.5% annualized, with healthcare outlays contributing significantly, while exports surged 7.4% and imports declined. Government spending rebounded mainly due to increased defence outlays, helping to offset weaker private sector investments. However, business investment experienced a fall. The Personal Consumption Expenditures (PCE) inflation gauge rose to 2.8% for the quarter, up from 2.1%, indicating inflation remains above the Federal Reserve's 2% target.
The release of these GDP figures was delayed due to a US government shutdown between October and November, which furloughed data-collecting workers. This delay, alongside tariff-related uncertainties - particularly those announced by former President Trump and currently subject to Supreme Court challenges - contributed to volatility in economic data and policy debates.
The economic backdrop includes a contraction in the first quarter tied to tariff uncertainty, with a rebound supported by substantial AI investment and strong consumer demand. Despite solid underlying momentum described by economists as resilient, some caution that the pace of growth may be difficult to sustain amid persistent price pressures and cooling spending indicators observed in surveys and credit data.
Consumer sentiment has declined, with the Conference Board sentiment index falling for the fifth consecutive month in December, the longest such decline since 2008. Amid this, the Federal Reserve has cut interest rates three times in 2025 but remains divided on the pace of future cuts, adding to ongoing monetary policy uncertainty.
Analysts note that rising prices are disproportionately affecting lower- and middle-income households. The outlook for 2026 includes potential positive impacts from tax cuts and expected Fed rate reductions, which may help maintain the economy's expansion. Economist Paul Ashworth has warned that growth could slow to around 2% annualized in the fourth quarter, partly due to the government shutdown's effects on economic data and activity.
