GDP Growth Hits 3.4%, but Household Budgets Tell a Different Story

The economy picked up speed over the summer, but household budgets did not.

Gross domestic product grew at a 3.4% annual rate from July through September, the Commerce Department reported Thursday, compared with 2.2% in the prior quarter. The report attributed much of the increase to spending by AI companies building out data centers, along with consumer purchases. It also said that spending was concentrated among higher-income Americans, who are better positioned to absorb price increases. Prices rose 3.6% in September from a year earlier, above the Federal Reserve's 2% target. The central bank held its benchmark rate steady Wednesday, and the report left pressure on the question of whether rates rise at the December meeting.

The data arrive days before the midterm elections, when many Americans say they feel uneasy about their finances. The Commerce Department's separate report put the personal saving rate at 3.8% in September, down from 4.1% in August, and wage growth has trailed inflation. The conflict with Iran has pushed up gasoline costs.

Siri Steven, a manager at a resale store in Decorah, Iowa, said she and her husband have postponed repairs on their house, which is more than 130 years old. "We barely go out to eat now," she said. "I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft." She said her family lives paycheck to paycheck and has not been able to save.

Mark Zandi, chief economist at Moody's Analytics, said the growth figures mask fragility, pointing to tariffs and the U.S. war against Iran as obstacles for businesses and consumers. "We're growing," Zandi said. "The economy is moving forward but it's a very, very fragile growth. It doesn't feel like we're kicking it in on all cylinders."

The Commerce Department's inflation measure informs how the Federal Reserve weighs changes to its benchmark interest rates. The personal saving rate stood at 3.8% in September, according to a separate Commerce Department report.