US economy grows at fastest pace in two years

The US economy picked up speed over the three months to September, as consumer spending jumped and exports increased.

The world’s largest economy expanded at an annual rate of 4.3%, up from 3.8% in the previous quarter. That was better than expected, and marked the strongest growth in two years.

The report, which had been delayed by the US government shutdown, sheds light on an economy that has been buffeted by dramatic changes to trade and immigration policies, as well as persistent inflation and cuts to government spending.

But while that has led to sharp swings in some areas, such as imports and exports, the underlying economy has maintained solid momentum, outperforming many forecasts.

“This is an economy that has defied doom and gloom expectations basically since the beginning of 2022”, said Aditya Bhave, senior economist at Bank of America.

Speaking to the BBC’s Business Today programme, Mr Bhave described the economy as “very very resilient”.

“I don’t see why that wouldn’t continue going forward,” he added.

The overall growth figure for the third quarter of the year was much stronger than expected, with most analysts expecting an annual pace of about 3.2%.

It was lifted by consumer spending that rose at an annual rate of 3.5%, compared with 2.5% in the previous quarter, despite a slowing job market, as households spent more on health care services.

Imports – which count against growth – continued to decline, reflecting the wave of taxes on shipments entering the US that President Donald Trump announced this spring.

Meanwhile exports, which had dropped sharply, bounced back, surging by 7.4%. Government spending also rebounded, driven by defence outlays.

Those gains helped to overcome a slowdown in business investment, including in intellectual property, and a housing market struggling under the weight of still-high interest rates, which have heightened affordability issues and supply constraints.

Michael Pearce, chief US economist at Oxford Economics, said the economy was well positioned as it headed into 2026, as it starts to feel the boost from tax cuts and the US central bank’s recent moves to drop interest rates.

“Underlying measures are consistent with a solid expansion,” he said.

However, some analysts warned that rising prices faced by some households could make it difficult to sustain the unusually strong pace of growth seen in the most recent quarter.

Over the three months to September, the Fed’s preferred inflation gauge, the personal consumption expenditures price index, ticked up 2.8%, compared with 2.1% in the previous quarter, according to the report.

Analysts have warned that those price increases are weighing on lower and middle income households, even as higher income households continue to spend freely.

Oliver Allen, senior US economist at Pantheon Macroeconomics, noted that some more recent surveys and credit card data suggest that households are reining in their spending.

“The weak labour market, stagnant real incomes, and exhaustion of pandemic-era excess savings all seem finally to be catching up with households,” he said.