GDP continues to increase, as third quarter growth surprises

Energy prices and information technology are driving expansion and keeping inflation high.WASHINGTON (CN) — The U.S. economy’s rebound in 2026 has sped up, with gross domestic product surpassing economist expectations, data released Thursday shows.The initial estimate of 3rd quarter GDP increased by 3.4%, compared with the 3% increase most economists had forecast and the 3.3% predicted by the Federal Reserve Bank of Atlanta.Government spending helped account for a large swath of growth, according to the Bureau of Economic Analysis, with a 0.9% increase last quarter compared with a percentage reduction in spending for the second quarter. Investment in information processing equipment also rose, as did private inventories.“The economy is on fire right now,” said Jamie Cox, managing partner for Harris Financial Group. “The problem is that some people are conflating inflation for growth at the moment.”The headline GDP number is not final, as the Bureau of Economic Analysis will issue two more revisions over the next several weeks. Previous revisions have chipped away at the past two GDP estimates.After 2025 ended dismally with just a 0.2% increase in growth, GDP jumped 2.5% during the first quarter of 2026. However, it had shrunk since then, falling to 2.2% during the second quarter of 2026.Despite the boost in economic growth, inflation remains one of the top headwinds to the U.S. economy, and the latest pricing data is not encouraging.In a separate release Thursday morning, personal consumption expenditures rose 0.5% last month, in line with what most economists expected but still a notable increase. Without volatile energy, the core PCE increased by 0.3% monthly and 3.1% annually, also in line with expectations.The driving factor for consumer spending in September was gasoline and other energy goods, which saw a nearly $48 billion increase. Transportation services, housing, foods services and healthcare also saw noteworthy increases.The inflation data also follows this week’s decision by the Federal Reserve to keep the federal funds interest rate steady at 3.75% to 4%. In its accompanying statement, the Fed noted inflation “remains elevated” but the central bank will examine more information to determine if it will raise rates next month.Two of the 12 voting members of the Federal Open Market Committee dissented from the decision, voting to raise rates by 25 basis points, which has some experts thinking the vibe is becoming more hawkish at the central bank.Thomas Ryan, senior North America economist at Capital Economics, wrote in an investor’s note “there is a reasonably large camp developing that are concerned about the risk of the Fed falling beyond the curve,” predicting two additional hikes in the months to come.Categories / Economy, EnergySubscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads