Research
October 29, 2026
GDP
U.S. economy rose 3.4% in Q3 on solid spending growth
The U.S. economy accelerated in the third quarter of 2026, with real GDP increasing at a 3.4% annualized rate, up from 2.2% in the second quarter and marking the strongest pace of growth in a year. Activity was supported by solid gains in consumer spending, business investment, and federal government expenditures, more than offsetting headwinds from net exports and residential investment.
Domestic demand remained particularly strong. Consumer spending and fixed investment, key indicators of underlying economic momentum, rose at a robust 5.0% annualized rate in the third quarter, following a 4.6% gain in the second quarter. Continued investment in artificial intelligence has helped support economic growth, but broader-based strength in household and business spending has been equally important in sustaining the economy's resilience.
Looking ahead, the National Restaurant Association expects economic growth to moderate but remain solid, with real GDP projected to increase 2.4% in 2026 and 2.5% in 2027. Even so, meaningful risks remain. Ongoing affordability challenges, elevated uncertainty, weaker consumer confidence, and geopolitical tensions, including the conflict involving Iran, could weigh on economic activity and temper the outlook.
Digging deeper into the report, consumer spending remained a key driver of economic growth, increasing at a 3.8% annualized rate for the second consecutive quarter. While goods spending cooled somewhat, it remained healthy, rising 3.0% in the third quarter after a 4.5% gain in the second. Services spending strengthened notably, accelerating to a 4.1% annualized pace from 3.4% in the prior quarter and posting its strongest quarterly performance since the second quarter of 2022. Overall, personal consumption expenditures contributed 2.52 percentage points to real GDP growth in the third quarter, underscoring consumers' continued willingness to spend despite ongoing economic uncertainty.
Business investment also provided substantial support to growth. Fixed investment rose at a robust 9.4% annualized rate in the third quarter, following a 7.7% increase in the second. As has been the case in recent quarters, gains were led by strong growth in equipment investment (+20.9%) and intellectual property products (+8.4%), reflecting continued spending on artificial intelligence and other productivity-enhancing technologies. Investment in structures also rebounded, increasing 5.4% after being essentially flat in the second quarter, marking its strongest gain since late 2024.
Businesses also rebuilt inventories in the third quarter after reducing stockpiles in four of the previous five quarters. By contrast, residential investment remained a drag on activity, declining for the eighth time in the past 10 quarters amid ongoing affordability and financing challenges. Taken together, gross private domestic investment contributed 3.27 percentage points to real GDP growth, its largest contribution in six quarters.
Government spending was another source of support, adding 0.90 percentage points to headline GDP growth. Federal expenditures rose sharply in the third quarter, contributing 0.91 percentage points after a series of uneven quarterly readings over the past year. State and local government spending, by comparison, was essentially unchanged and subtracted a negligible 0.01 percentage points from growth.
Trade remained the primary headwind. Net exports reduced real GDP growth by 3.32 percentage points in the third quarter, marking the fourth consecutive quarter in which trade weighed on economic activity. Imports surged at a 19.7% annualized rate while exports declined 5.7%, widening the trade deficit and exerting a significant drag on overall growth.
Domestic demand remained particularly strong. Consumer spending and fixed investment, key indicators of underlying economic momentum, rose at a robust 5.0% annualized rate in the third quarter, following a 4.6% gain in the second quarter. Continued investment in artificial intelligence has helped support economic growth, but broader-based strength in household and business spending has been equally important in sustaining the economy's resilience.
Looking ahead, the National Restaurant Association expects economic growth to moderate but remain solid, with real GDP projected to increase 2.4% in 2026 and 2.5% in 2027. Even so, meaningful risks remain. Ongoing affordability challenges, elevated uncertainty, weaker consumer confidence, and geopolitical tensions, including the conflict involving Iran, could weigh on economic activity and temper the outlook.
Digging deeper into the report, consumer spending remained a key driver of economic growth, increasing at a 3.8% annualized rate for the second consecutive quarter. While goods spending cooled somewhat, it remained healthy, rising 3.0% in the third quarter after a 4.5% gain in the second. Services spending strengthened notably, accelerating to a 4.1% annualized pace from 3.4% in the prior quarter and posting its strongest quarterly performance since the second quarter of 2022. Overall, personal consumption expenditures contributed 2.52 percentage points to real GDP growth in the third quarter, underscoring consumers' continued willingness to spend despite ongoing economic uncertainty.
Business investment also provided substantial support to growth. Fixed investment rose at a robust 9.4% annualized rate in the third quarter, following a 7.7% increase in the second. As has been the case in recent quarters, gains were led by strong growth in equipment investment (+20.9%) and intellectual property products (+8.4%), reflecting continued spending on artificial intelligence and other productivity-enhancing technologies. Investment in structures also rebounded, increasing 5.4% after being essentially flat in the second quarter, marking its strongest gain since late 2024.
Businesses also rebuilt inventories in the third quarter after reducing stockpiles in four of the previous five quarters. By contrast, residential investment remained a drag on activity, declining for the eighth time in the past 10 quarters amid ongoing affordability and financing challenges. Taken together, gross private domestic investment contributed 3.27 percentage points to real GDP growth, its largest contribution in six quarters.
Government spending was another source of support, adding 0.90 percentage points to headline GDP growth. Federal expenditures rose sharply in the third quarter, contributing 0.91 percentage points after a series of uneven quarterly readings over the past year. State and local government spending, by comparison, was essentially unchanged and subtracted a negligible 0.01 percentage points from growth.
Trade remained the primary headwind. Net exports reduced real GDP growth by 3.32 percentage points in the third quarter, marking the fourth consecutive quarter in which trade weighed on economic activity. Imports surged at a 19.7% annualized rate while exports declined 5.7%, widening the trade deficit and exerting a significant drag on overall growth.
