The Commerce Department’s third-quarter report delivered the upbeat headline first: U.S. GDP expanded at a 3.4% annualized rate, accelerating from 2.2% in the second quarter and beating forecasts. Consumer spending rose 3.8%, while real sales to private domestic purchasers — a closely watched gauge of underlying household and business demand — climbed 4.9%.¹

The engine was unusually concentrated. Investment surged as companies poured money into the AI buildout: information-processing equipment spending jumped 37.4%, industrial equipment rose 24.7%, and private inventories alone added 1.6 percentage points to headline growth. That made the quarter look robust, though it also meant nearly half the reported expansion came from stockpiling rather than final sales.²

By September, the picture had become less straightforward. Consumer spending was still up 0.5% for the month, and initial jobless claims fell to 194,000, close to late-1960s lows. But income increased just 0.2%, while the PCE price index rose 0.5% in the month and 3.6% from a year earlier. Core PCE inflation stood at 3.1%, still well above the Federal Reserve’s 2% target.¹

That tension framed the Fed’s decision the following day to hold its benchmark rate at 3.75% to 4%. Chair Kevin Warsh said policymakers faced an “information rich” period and were “keen to take notice” of incoming developments.¹

Housing is the clearest counterweight to the boom. Residential investment fell 3.3% in the quarter, buyer traffic sank to its weakest level in almost 15 years, and J.P. Morgan Asset Management’s David Kelly called the market “haunted.”² Goldman expects housing investment to decline again in the fourth quarter even as AI-led business spending rises.

The result is an economy growing faster than expected, but with the benefits concentrated in investment and consumption while high prices and a frozen housing market keep the apparent boom from feeling broadly secure.