US Economy Expands 3.4% in Q3 2026 on Consumer Spending and AI Investment

The United States economy expanded at an annualized rate of 3.4% in the third quarter of 2026, outpacing forecasts while inflation accelerated to 3.6% in September, according to new data released by the Commerce Department on Thursday.

Consumer Spending and AI Investment Power Third-Quarter Growth

Consumer spending, which accounts for more than two-thirds of economic output, grew at a 3.8% annualized rate in the third quarter, matching the pace set in the previous period and contributing roughly 2.52 percentage points to the expansion. Government spending added another 0.90 percentage points of support.

At the same time, massive investment from the tech industry into artificial intelligence data centers drove business investment higher. Gross private domestic investment added 3.27 percentage points—with the change in private inventories adding 1.61 points, the largest contribution since the first quarter of 2025. Nonresidential fixed investment surged, with equipment spending posting a 20.9% jump, its strongest gain since 2020. Outlays on information processing equipment soared by 37.36%, contributing 0.86 percentage points to GDP, led heavily by computers and peripheral equipment.

The economy was thought to have been a lost cause during much of the current Administration’s time in office, but real GDP has bounced back above a 3 percent run rate in Q3 2026 for the first time in a year.

via CNBC

Not all sectors contributed positively to the headline figure. Net exports acted as a substantial drag of 3.32 percentage points on growth—the largest since the first quarter of 2025—as imports jumped 19.67% and exports fell 5.74%, reflecting a decline in sales of US-produced goods and services abroad.

PCE Inflation Accelerates as Energy Prices Weigh on Households

While economic output exceeded forecasts, inflation readings signaled lingering price pressures across the economy.

The core PCE price index, which strips out volatile food and energy costs, rose 2.5% on a quarterly basis. Energy costs surged during the month, driven by a 9.2% monthly rise in gasoline and other energy goods amid ongoing conflict in the Middle East that has strained energy shipments and damaged facilities. Housing costs increased 0.3%.

The price acceleration leaves inflation well above the central bank’s stated 2% target. Jamie Cox, Managing Partner at Harris Financial Group, noted that the report shows the U.S. economy is on fire right now, adding that some people are conflating inflation for growth while the dash for capital by hyperscalers has caused rates to rise. Meanwhile, overall consumer sentiment measured by the University of Michigan sits down 15% from February as consumers expect more inflation to come.

Federal Reserve Interest Rate Decisions Await December Meeting

The dual releases arrive just a day after the Federal Reserve voted to hold its benchmark interest rate steady in a range between 3.75% and 4% for the second meeting in a row.

Speaking in Washington, D.C., Fed Chair Kevin Warsh addressed the economic data and the central bank’s vigilance.

Economic growth has strengthened.

Fed Chair Kevin Warsh

Despite the pause, the labor market has remained strong. According to data, traders saw an 83% probability of a 25-basis-point hike at the Fed’s Dec. meeting as officials weigh whether monetary policy remains sufficiently restrictive to tame price growth.

More on this story: US Inflation Hits 3.7% in September as Energy Costs Surge · S&P 500 and Nasdaq Rise as August PCE Inflation Comes in Below Estimates · US Stock Futures Rise as AI Gains Offset High Treasury Yields