The U.S. economy expanded more quickly than expected in the third quarter, even as inflation accelerated in September, according to Commerce Department reports released Thursday, Oct. 29. Gross domestic product grew at a seasonally adjusted annualized rate of 3.4%, exceeding the 3.1% forecast and improving on the second quarter’s 2.2% pace.
The personal consumption expenditures price index rose a seasonally adjusted 0.5% in September, its biggest monthly increase since March. That matched the Dow Jones consensus forecast. Prices were 3.6% higher than a year earlier, slightly below expectations. Excluding food and energy, core PCE inflation measured 0.3% for the month and 3.1% annually, both in line with forecasts. Federal Reserve officials monitor both readings but generally consider core inflation a better guide to longer-term trends.
Energy accounted for much of September’s price pressure. Gasoline and other energy goods became 9.2% more expensive during the month, while the broader category of energy goods and services rose 5.4%. Economists have expressed concern that higher energy costs could spread through the economy. Services prices excluding energy and housing increased 0.4%, while housing costs climbed 0.3%.
The figures followed the Fed’s decision Wednesday to leave its benchmark interest rate in a range of 3.75% to 4%. With inflation still above its 2% goal, central bank officials have maintained that they have time to assess new information before choosing their next step. Fed Chairman Kevin Warsh said Wednesday that policymakers were closely watching developments during a period offering substantial new information.
Investment tied to the artificial intelligence build-out, alongside strong consumer and government spending, helped support economic growth. Gross private domestic investment jumped 19.4% in the third quarter, with equipment spending rising 20.9% and investment in intellectual property products increasing 8.4%. Consumer spending grew 3.8%, matching its second-quarter pace.
Another measure watched by Fed officials, real sales to private domestic purchasers, increased 4.9%, up from 4.6% in the previous quarter. The measure serves as an indicator of underlying demand. September consumer spending separately rose 0.5%, below the expected 0.6% gain, while personal income increased 0.2%, compared with a forecast of 0.3%.
Despite September’s acceleration, quarterly inflation figures showed improvement. Headline PCE prices rose 2.1% in the third quarter, compared with 5% in the second quarter. Core price growth slowed to 2.5% from 3.3%. Fwdbonds chief economist Chris Rupkey said economic expansion remained strong despite geopolitical uncertainty and the harm higher energy costs were causing across many sectors.
A separate Labor Department report Thursday indicated that layoffs remained low. Initial unemployment claims slipped to a seasonally adjusted 194,000 for the week ended Oct. 24, below the 200,000 forecast and near levels last recorded in the late 1960s. Stock market futures were negative following the reports, and Treasury yields also declined.
