US economy grew at 3.4% in Q3 2026, fastest pace in a year, led by AI investment boom

The U.S. economy grew at a 3.4% annualized rate from July through September, the Bureau of Economic Analysis reported Thursday — the fastest pace in a year, beating forecasts and nearly doubling the 2.2% rate recorded in the second quarter.

The advance estimate, the first of three the BEA will publish for the quarter, topped a Wall Street Journal survey median of 3.2%, the Atlanta Fed's GDPNow model estimate of 3.3%, and a FactSet consensus of 3.0%. The New York Fed's Staff Nowcast had been more cautious at 2.7%.

The single biggest engine of the acceleration was business investment. Private domestic investment surged 19.4%, compared with 4.6% in the second quarter, driven heavily by spending on artificial intelligence infrastructure. Investment in information processing equipment — computers and peripherals chief among them — jumped 37.4%. Software investment rose 9.6% and research and development spending climbed 7.5%. Business investment excluding housing was up 12.7% overall, according to the Associated Press.

Consumer spending, the economy's steadiest pillar, held firm at a 3.8% rate — matching the second quarter — with services spending, particularly on hospitals, outpatient care and prescription drugs, rising 4.1%. Goods spending grew 3.0%.

Government spending added meaningfully to the headline, jumping 5.3% after a near-flat reading in the prior quarter, with federal spending rising at a 15.8% rate. The government sector's contribution was partly driven by sales of crude oil from the Strategic Reserve, according to Trading Economics. Private inventory stockpiling, which had subtracted from growth in the second quarter, swung to add 1.61 percentage points.

Those gains were partly clawed back by trade. Imports — which are subtracted from GDP — surged 19.7%, removing 2.64 percentage points from the headline figure. Exports fell 5.7%, subtracting a further 0.68 points. Strip out inventories, trade and government, and the picture is more modest: real final sales to private domestic purchasers — a measure of what U.S. households and businesses actually spent — grew at a 4.9% rate, up from 4.6% in the second quarter, according to StockTitan.

One clear weak spot was housing. Residential investment dropped 3.3%, reversing a brief gain in the second quarter, and has now fallen in six of the last seven quarters — a direct consequence of elevated mortgage rates.

Inflation signals in the report offered some relief. The personal consumption expenditures price index rose at a 2.1% rate in the third quarter, down sharply from 5.0% in the prior quarter, according to StockTitan — though it remains just above the Fed's 2% target.

The GDP report lands one day after the Federal Reserve held short-term interest rates steady, with two officials voting for a quarter-point increase. Fed Chair Kevin Warsh, speaking at a press conference in Washington on Wednesday, acknowledged the tension between strong growth and stubborn inflation.

Economic activity is expanding at a strong pace. While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient.— Kevin Warsh, Federal Reserve Chair

It's our responsibility to get inflation down.— Kevin Warsh, Federal Reserve Chair

Prices rose 3.7% in September compared with a year earlier, more than a percentage point above the Fed's 2% target, according to ABC News. The central bank raised rates by a quarter point last month — its first increase in three years — and market pricing via CME Group's FedWatch Tool puts the odds of another quarter-point hike at the Fed's December meeting at about 85%, according to ABC News.

The broader economy has shown resilience despite those pressures. Hiring has continued to grow, though at a slower pace, and unemployment has remained low by historical standards, according to ABC News. Higher energy prices linked to fighting with Iran have added to cost pressures, but have not derailed growth, according to the Associated Press.

Thursday's 3.4% figure is a first draft. The BEA will revise it on November 25 and again on December 23. On average, the first estimate has changed by half a percentage point, up or down, by the time the third estimate is published, according to StockTitan's analysis of BEA data since 2002.

Why it matters — The GDP reading signals the US economy is expanding well above its recent average pace, but the same report's import surge and sticky inflation above 3% are feeding expectations of another Federal Reserve rate hike in December — which would push borrowing costs higher for mortgages, credit cards and business loans.

Reported by bea.gov, reuters.com, wsj.com, tradingeconomics.com, abcnews.com, boston25news.com, stocktitan.net