U.S. Economy Grew at 3.4% in Q3 as September Inflation Hits 3.6%

The U.S. economy expanded faster than analysts predicted in the third quarter, even as price pressures intensified in September.

The Commerce Department reported on Thursday that gross domestic product increased at a seasonally adjusted annualized rate of 3.4%. This figure exceeded the consensus estimate of 3.1% and marked a sharp acceleration from the 2.2% growth recorded in the second quarter.

Growth has been supported by a surge in investment related to artificial infrastructure. Gross private domestic investment jumped 19.4% in the third quarter. This total included a 20.9% increase in equipment spending and an 8.4% rise in intellectual property products. Real sales to private domestic purchasers, a metric the Federal Reserve uses to gauge underlying demand, climbed 4.9%. That figure surpassed the 4.6% increase seen in the prior quarter.

Consumer behavior remained resilient during the quarter. Spending rose 3.8%, matching the pace of the previous period. In September alone, consumer spending climbed 0.5%. This result fell slightly short of the forecast for a 0.6% gain. Personal income rose 0.2% for the month, also below the estimated 0.3% increase.

Inflation data released alongside the GDP figures showed price increases accelerating in September. The personal consumption expenditures price index rose 0.5% for the month. This monthly gain was the largest since March. The annual inflation rate reached 3.6%, which is 0.1 percentage point below the consensus forecast. Excluding food and energy, the core PCE index increased 0.3% in September. The core annual rate stood at 3.1%, in line with expectations. Both measures remain well above the Federal Reserve's 2% target.

Energy costs drove much of the September price surge. Gasoline and other energy goods prices rose 9.2% for the month. Broader energy goods and services prices jumped 5.4%. Services prices excluding energy and housing rose 0.4%, while housing costs increased 0.3%. Economists noted that the energy spike could spread to other sectors.

The reports arrived one day after the Federal Reserve held its benchmark interest rate steady in a range of 3.75% to 4.0%. Fed Chairman Kevin Warsh said on Wednesday that the period ahead is information rich. He stated that he and his colleagues are keen to take notice of what is happening in the world. Despite the strong growth and elevated inflation, officials indicated they prefer to evaluate incoming data before deciding on their next move.

Labor market data released Thursday showed that layoffs remain low. Initial jobless claims fell to a seasonally adjusted 194,000 for the week ended Oct. 24. This number was below the estimate for 200,000 and is near levels last seen in the late 1960s.

Market reactions were mixed following the data release. Stock market futures moved lower, while Treasury yields declined. Chris Rupkey, chief economist at Fwdbonds, noted that economic growth is powering ahead despite geopolitical risks and higher energy costs. He observed that real GDP has returned to a 3 percent run rate for the first time in a year.

The next set of economic data will arrive in the coming weeks as policymakers continue to assess the state of the economy.