The initial estimate of the gross domestic product for the third quarter showed that the U.S. economy expanded at an annualized pace of 4.3%, adjusted for inflation, which is substantially quicker than the 3.8% recorded in the second quarter, based on Commerce Department data released on Tuesday. This represents the fastest pace of expansion in two years.
The acceleration in consumer spending, which rose by 3.5% compared to 2.5% in the second quarter, and exports, which jumped by 8.8% versus -1.8% in the second quarter, were the primary drivers behind the third-quarter GDP figure.
Federal expenditures also played a notable role, reflecting a significant increase in defense spending as well as buybacks of federal workers, part of efforts to reduce governmental outlays. However, the fourth-quarter GDP report, due next month, is anticipated to be negatively affected by reduced federal spending stemming from the 43-day government shutdown.
President Donald Trump stated on Tuesday that the report demonstrates the success of his sweeping tariffs, which he significantly raised during the third quarter. Nevertheless, a pending Supreme Court case could invalidate many of the duties he imposed and potentially trigger major refunds for importers.
“TARIFFS are responsible for AMERICA’S GREAT economic performance, JUST ANNOUNCED… AND THEY WILL ONLY GET BETTER!” Trump posted on his social media platform. “Also, NO INFLATION AND GREAT NATIONAL SECURITY. Pray for the U.S. Supreme Court!!”
Although Trump has repeatedly urged the Federal Reserve to lower rates to stimulate the economy, the report on Tuesday is likely to give the central bank even less motivation to reduce rates when it reconsiders next month.
Mixed Economic Picture
The GDP report resembles a view of the economy from a bird’s-eye view. From that vantage point, the economy appears robust. But upon closer inspection, a less rosy scene emerges.
While affluent Americans continue to fuel the majority of consumer spending growth, low to middle-income consumers have become much more circumspect. Economists label this phenomenon a “K-shaped” economy.
“The K-shaped economy is staring us right in the face,” commented James Knightley, Chief International Economist at ING, in a note on Tuesday following the GDP release. He noted that economic expansion is “concentrated among high-income households and tech-focused investments, while broader consumer sentiment remains under strain.”
Less than two hours after the GDP announcement, The Conference Board reported a substantial drop in consumer confidence this month—down 3.8 points from November. The December reading of 89.1 marked the lowest level since April, when Trump imposed tariffs on “Liberation Day.”
The report revealed that consumers’ assessment of their families’ present financial condition fell into negative territory for the initial time in nearly four years.
Consumers across all income brackets also voiced greater unease regarding the state of the job market, with the unemployment rate recently hitting a four-year peak. The percentage of those stating jobs were plentiful decreased to its lowest point in four years. Meanwhile, businesses reported a net pessimistic outlook on the economy for the first time since September 2024.
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