US GDP rises 3.4% in third quarter driven by AI

The U.S. economy grew more than expected in the third quarter as resilient consumer spending and business investment driven by artificial intelligence more than offset the impact of rising oil prices from the conflict in the Middle East.

GDP (Gross Domestic Product) increased at an annualized rate of 3.4% in the last quarter, the Commerce Department's Bureau of Economic Analysis reported this Thursday (29), in its preliminary estimate of third-quarter GDP. Economists consulted by Reuters predicted an increase of 3.2%.

The strength of growth contrasts sharply with households' pessimistic assessment of the economy, reflected in President Donald Trump's record-low approval ratings and sharp deterioration in consumer confidence. The report was released less than a week before the midterm elections, scheduled for Tuesday (3), which will determine control of Congress.

The economy is growing at a pace much higher than what some Fed (Federal Reserve) officials consider to be the non-inflationary growth rate, of around 2%. On Wednesday (28), the United States central bank maintained its basic interest rate in the range of 3.75% to 4%, although it recognized that inflation "remains high".

Economists expected the Fed to raise interest rates in December. Fed Chairman Kevin Warsh told reporters that "economic activity is growing at a strong pace," noting that "while uncertainty persists, in part due to geopolitical developments, domestic spending has proven resilient."

Faced with the growing burden of AI-related spending, some economists said strong GDP growth likely did not accurately reflect the state of the economy. Investors are increasingly aware of the rising costs of long-term AI projects, whose returns are uncertain.

Tech companies have borrowed huge sums over the past year to finance AI spending, posing a potential downside risk for equipment investments. Still, economists expected this pillar of support to lose strength, although a decline in spending was likely.

Consumer spending, which represents more than two-thirds of the economy, rose at a 3.8% pace in the July-September quarter, after growing at a 3.8% rate in the second quarter. Layoffs at historically low levels and moderate hiring help support spending, although wage gains have sometimes lagged inflation.

But families have also been saving less and using their financial reserves to cover expenses. With the average price of gasoline still above $4 per gallon as the war between the United States and Israel against Iran drags on, economists have predicted a slowdown in consumer spending.