US economy grows 3.4% in third quarter, beating forecasts as inflation cools
US GDP grew at a 3.4% annual rate in July–September 2026, faster than the 2.2% of the second quarter and above economists' forecasts, while the PCE price measure slowed sharply — five days before the midterm elections.
At a glance
- US real GDP grew at a seasonally adjusted annual rate of 3.4% in the third quarter of 2026, according to the Bureau of Economic Analysis's advance estimate released on Thursday, October 29.
- That was up from 2.2% in the second quarter and above economists' forecasts of roughly 3.0%–3.2%.
- Business investment (led by equipment such as computers), consumer spending and federal government spending drove growth; exports fell, mainly petroleum products.
- Inflation eased: the PCE price index rose 2.1% (from 5.0%) and core PCE rose 2.5% (from 3.3%).
- The BEA's second estimate is due on November 25, 2026.
The US economy grew at an annual rate of 3.4% in the third quarter of 2026, faster than expected, according to the first official estimate published by the Bureau of Economic Analysis (BEA) on Thursday, October 29. Growth picked up from 2.2% in April–June on stronger business investment, consumer spending and government outlays, while inflation measured in the same report slowed sharply — a mix that lands five days before the November 3 midterm elections.
The numbers
Economists had expected growth of around 3.0% to 3.2%, so the advance estimate beat forecasts. The Atlanta Federal Reserve's GDPNow model had pointed to about 3.5% in its October 20 reading.
| Indicator (annualised) | Q3 2026 | Q2 2026 |
|---|---|---|
| Real GDP | 3.4% | 2.2% |
| Real final sales to private domestic purchasers | 4.9% | 4.6% |
| Gross domestic purchases price index | 3.0% | 5.6% |
| PCE price index | 2.1% | 5.0% |
| Core PCE (excl. food and energy) | 2.5% | 3.3% |
What drove growth
Investment: The biggest boost came from business investment, especially private inventories in wholesale trade and manufacturing, and equipment spending led by computers — a sign of the continuing spending wave on artificial-intelligence data centres.
Consumers: Household spending rose, led by health care, restaurants and hotels, and prescription drugs.
Government: Federal spending added to growth, but the BEA noted this partly reflects lower crude oil sales from the Strategic Petroleum Reserve. Because those sales are subtracted from government spending in the accounts, fewer sales show up as higher spending — a statistical effect rather than new purchases.
Trade: Exports fell, mainly petroleum products, while imports rose faster than in the second quarter. Both subtracted from growth.
A closely watched measure of underlying demand — final sales to private domestic buyers, which strips out inventories, trade and government — rose 4.9%, its strongest pace in some time.
Background
The figures follow a turbulent year. The war involving Iran pushed oil prices sharply higher in the spring, which drove the 5.0% PCE inflation rate in the second quarter. With energy prices steadier over the summer, inflation in the third quarter cooled back towards the Federal Reserve's 2% target.
On Wednesday, the Fed kept its benchmark rate at 3.75%–4% in a 10–2 vote, with two policymakers preferring a hike. Thursday's data show an economy strong enough to cope with current rates, but the cooler inflation reading weakens the case for an immediate increase.
Reactions
Republican groups seized on the figure ahead of the midterms, saying the economy was growing faster than expected under President Donald Trump. Democrats have focused their campaigns on living costs, which remain high after this year's energy shock. Economists cautioned that the advance estimate is based on incomplete data and that inventory building — which flattered the headline — can reverse in later quarters.
Why it matters
The US is the world's largest economy, and its growth sets the tone for global markets, commodity prices and the dollar. Strong US demand supports exporters across Asia, including Pakistan's textile and apparel makers, for whom the US is the single largest market. A resilient economy can also keep US interest rates — and the dollar — higher for longer, which raises borrowing costs for emerging markets.
What happens next
- November 3, 2026: US midterm elections.
- November 25, 2026: BEA's second estimate of Q3 GDP, with corporate profits.
- December 2026: next Federal Reserve policy meeting.
Questions people are asking
How much did the US economy grow in Q3 2026?
US real GDP grew at a 3.4% annual rate in the third quarter of 2026 (July–September), according to the Bureau of Economic Analysis's advance estimate published on October 29, 2026, up from 2.2% in the second quarter.
What was PCE inflation in the third quarter of 2026?
The PCE price index rose at a 2.1% annual rate in Q3 2026, down from 5.0% in Q2. Excluding food and energy, core PCE prices rose 2.5%, down from 3.3%.
When is the next US GDP report?
The Bureau of Economic Analysis will publish its second estimate of third-quarter GDP, along with corporate profits, on November 25, 2026, at 8:30 a.m. Eastern time.
