The United States economy demonstrated unexpected resilience in the third quarter of 2025, expanding at a robust annual rate of 4.3% between July and September. This acceleration surpassed economist predictions and was fueled by strong consumer expenditure, a surge in exports, and increased government spending, according to official data released on Tuesday.
Strong Growth Amid Persistent Inflation
The latest report from the US Commerce Department, which was delayed due to a government shutdown, showed the Gross Domestic Product (GDP) picking up pace from a revised 3.8% growth in the April-June quarter. Economists polled by FactSet had anticipated a more modest expansion of around 3%.
However, this stronger economic performance came with a familiar challenge: persistent inflationary pressure. The Personal Consumption Expenditures (PCE) index, closely monitored by the Federal Reserve, rose at an annual pace of 2.8% in the third quarter, up from 2.1% in the previous three months. The core PCE inflation, which excludes the volatile food and energy sectors, also increased to 2.9% from 2.6%, remaining notably above the central bank's 2% target.
Drivers of Economic Expansion
The primary engine of growth was consumer spending, which constitutes nearly 70% of US economic activity. It grew at a 3.5% annual rate, a significant jump from the 2.5% pace seen in the second quarter.
International trade provided a substantial boost. Exports surged at an impressive 8.8% annual rate, while imports, which are subtracted from GDP calculations, declined by 4.7%. This positive net trade contribution helped lift the overall growth figure. Government outlays also provided support to the quarter's expansion.
A key measure of the economy's underlying domestic strength, which focuses on consumer spending and private investment while excluding volatile components like trade and inventories, expanded at a steady 3% pace, slightly higher than the 2.9% recorded earlier.
Labour Market Cools as Fed Navigates Policy
This economic resilience is notable given the Federal Reserve's aggressive interest rate hikes in 2022 and 2023, aimed at taming the post-pandemic inflation surge. Despite inflation staying above target, the Fed cut its benchmark rate three consecutive times towards the end of 2025, driven largely by concerns over a cooling labour market.
Recent jobs data confirms this slowdown. The government reported that the economy added only 64,000 jobs in November, following a loss of 105,000 positions in October. The unemployment rate climbed to 4.6% last month, marking its highest level since 2021.
Economists characterise the current job market as being in a "low hire, low fire" phase. Businesses are exercising caution amid uncertainty surrounding former President Donald Trump's tariff policies and the ongoing impact of previously elevated interest rates. Since March, monthly job creation has averaged 35,000, a sharp decline from the 71,000 average in the year leading up to March. Federal Reserve Chair Jerome Powell has indicated he expects these job figures to be revised downward.
Tuesday's data is the first of three official estimates for the third-quarter GDP. Excluding a contraction in the first quarter—triggered by companies rushing to import goods ahead of tariff implementations—the US economy has continued to post solid growth, showcasing its underlying strength despite global headwinds and policy shifts.
