US economy grows at fastest pace in two years

The US economy gained momentum in the three months to September as consumer spending jumped and exports increased.

The world's largest economy grew at an annual rate of 4.3%, down from 3.8% in the previous quarter. This was better than expected and marked the strongest growth in two years.

The report, whose release was delayed by the US government shutdown, sheds light on an economy that has been battered by sharp changes in trade and immigration policies, as well as persistent inflation and government spending cuts.

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

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

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

“I don't understand why this won't continue,” he added.

Overall growth rate for the third quarter of the year was much stronger than expected, with most analysts expecting the annual rate to be around 3.2%.

This was helped by consumer spending, which rose 3.5% annually compared with 2.5% in the previous quarter, despite a slowing labor market as households spent more on health services.

Imports, which weigh against economic growth, continued to decline, reflecting a wave of taxes on US supplies that President Donald Trump announced this spring.

Meanwhile, exports, which had fallen sharply, rebounded, rising 7.4%. Government spending also increased, helped by defense spending.

These gains have helped reverse a slump in business investment, including intellectual property, and a housing market that is struggling under the weight of still-high interest rates that are exacerbating affordability and supply constraints.

Michael Pearce, chief U.S. economist at Oxford Economics, said the economy is in a good position heading into 2026 as it begins to see support from tax cuts and the U.S. central bank's recent moves to cut interest rates.

“The key measures are consistent with strong expansion,” he said.

However, some analysts warn that rising prices faced by some households could make it difficult to maintain the unusually high growth rate seen in the last quarter.

In the three months through September, the Fed's preferred measure of inflation, the personal consumption expenditure price index, rose 2.8%, up from 2.1% in the previous quarter, according to the report.

Analysts warn that such price increases are putting pressure on low- and middle-income households, even as higher-income households continue to spend freely.

Oliver Allen, senior US economist at Pantheon Macroeconomics, noted that some recent research and credit card data show households are holding back their spending.

“A weak labor market, stagnant real incomes and the depletion of excess pandemic-era savings appear to be finally catching up with households,” he said.