Market Update: Economic growth surges in late summer, the highest in two years – Full Analysis

Despite the hefty growth, many economists are forecasting tepid, if any, growth in the current fourth quarter, largely because of the spending and investment hit from the 43-day government shutdown that began Oct. 1.

GDP, the sum of all goods and services produced in the country, is the broadest measure of the economy. Brisk consumer spending, led by health care, recreational goods, and cars, made up more than half of the latest quarter’s growth. A pickup in US exports and government spending also contributed, while a pullback in business investment subtracted from overall growth.

President Trump was quick to cheer the strong reading as proof that his trade policies were juicing the economy.

“The SUCCESS is due to Good Government, and TARIFFS,” he posted on the social media platform Truth Social. “Consumer spending is STRONG, Net Exports are WAY UP, Imports and Trade Deficits are WAY DOWN, and there is NO INFLATION! … The Trump Economic Golden Age is FULL steam ahead.”

Economists, though, point out that many Americans, especially lower- and middle-income ones, aren’t feeling the benefits of a fast-growing economy.

“The composition of growth during the quarter, which was almost certainly driven by upper end households spending and technology investment that will result in little job creation, speaks volumes about the public souring on the economy heading into the holiday season,” Joe Brusuelas, chief economist at RSM US, wrote in an email to clients.

AI-related spending contributed to about 14 percent of the quarter’s growth, he said. Businesses spending on equipment and intellectual property continued to grow, albeit at a slower pace than they did earlier in the year.

Tariff-related swings in purchasing habits and trade have weighed heavily on this year’s data, leading to a negative reading in the first three months of the year, followed by an unusually high growth rate the next quarter. In the third quarter, growth was boosted by a flurry of car purchases, as Americans bought ahead to avoid the Trump administration’s promised tariffs, but economists say that bump has already passed.

“This was a quarter when consumers returned to being the key driver of the US economy,” Heather Long, chief economist at Navy Federal Credit Union, wrote in an email. “If the economy can avoid widespread layoffs, most American consumers can keep spending.”

Economists generally expect GDP growth for the full year will come in around 2 percent, which is considered solid but not strong.

The mismatch of recent data — showing sturdy overall growth but a weakening job market — is making it tougher for the Federal Reserve to chart its course on interest rates. Stocks dipped following the GDP report, as investors worried that the stronger-than-expected reading would lead the Fed to put off additional interest rate cuts in the coming months.

For businesses nationwide, 2025 has so far been marked by deep uncertainty. Many have held off on large purchases and hiring as they wait to see how tariffs, immigration rules and other Trump administration polices play out.

At Pretzel Pete, which makes salty snacks in smoky Gouda and margarita varieties, owner Karl Brown is dealing with higher costs but says business is up about 20 percent this year. The Pennsylvania-based manufacturer sells about half of its goods abroad, in Germany, Canada and Britain.

Although Brown is paying more for the ingredients he imports — such as cassava flour from India, which has been hit by a 25 percent tariff — he says export demand has increased as a weaker dollar makes American-made goods more attractive abroad.

“I was concerned about our exports this year, but they have not been affected,” he said. “Our business has grown a lot this year. Would it have increased more if the U.S. economy wasn’t as uncertain? Probably. But so far things are fine.”

Still, Brown is closely watching for signs of an impending slowdown. Usually by this time of year, he’d have received at least 15 gift baskets from vendors and suppliers. This year, he’s gotten just one.

“That tells you everything you need to know about how businesses are feeling,” he said.