U.S. Economy Grew 3.4% in Third Quarter, Beating Forecasts

The U.S. economy grew at a 3.4% annual rate in the third quarter of 2026, faster than in the spring and faster than forecasters expected, the U.S. Bureau of Economic Analysis said on Oct. 29. The advance estimate of Q3 2026 GDP covers July, August and September, and it shows business investment, consumer spending and government spending all rising while exports fell.

Key figures: 3.4% real GDP growth (Q2: 2.2%) · 4.9% private domestic demand · 2.1% PCE inflation (Q2: 5.0%) · 2.5% core PCE · next estimate Nov. 25

What Drove Third-Quarter Growth

BEA said the speedup from the second quarter came mainly from stronger investment and an upturn in government spending, partly offset by a drop in exports. Imports, which are subtracted when GDP is calculated, rose more than they did in the spring.

Investment was led by two things: companies adding to their inventories, especially wholesalers and manufacturers of nondurable goods, and spending on equipment. Within equipment, the biggest gain came from information processing gear, mainly computers and peripherals. BEA based that reading largely on import data, which fits the pattern of companies bringing in hardware from overseas. Axios, in its report on the release, tied the investment wave to spending on artificial intelligence.

Consumer spending rose for both services and goods. On the services side, health care led, mainly hospitals and outpatient care, followed by restaurants and hotels. On the goods side, the biggest gain was in “other nondurable goods,” mostly prescription drugs.

Government spending was more than fully explained by federal spending, led by nondefense consumption. BEA noted an accounting quirk behind that: sales of crude oil from the Strategic Petroleum Reserve are subtracted from government spending, and those sales were smaller in the third quarter than in the second. The agency said the oil sales have no direct effect on total GDP because the oil shows up in other parts of the accounts.

Exports fell, led by petroleum and related products, while the largest contributor to imports was capital goods other than autos.

By the Numbers: Growth Up, Inflation Down

The 3.4% pace is 1.2 percentage points faster than the second quarter’s 2.2% and 0.9 points faster than the 2.5% reported for the first quarter, a TBR calculation from the published figures. USA Today reported that economists polled by Reuters had expected 3.2% and that the Atlanta Fed’s GDPNow model was tracking 3.3%, and that it was the fastest growth since the third quarter of 2025.

The quarterly rate is easier to picture without annualizing it: BEA said real GDP rose 0.8% from the second quarter to the third.

The underlying demand figure was even stronger. Real final sales to private domestic purchasers, which adds consumer spending and private fixed investment and leaves out trade, inventories and government, rose 4.9%, up from 4.6%. Axios called it the strongest reading of that measure in five years.

Prices told a different story. The personal consumption expenditures price index, the inflation gauge the Federal Reserve targets, rose at a 2.1% annual rate, less than half the second quarter’s 5.0%. Excluding food and energy, core PCE prices rose 2.5%, down from 3.3%. The price index for all goods and services bought in the U.S. rose 3.0%, after 5.6% in the spring. In current dollars, before adjusting for inflation, GDP rose 5.6%.

Why It Matters for Rates and for Massachusetts

Faster growth with cooler inflation is the combination central bankers look for. The Boston Report explained the Fed’s latest rate decision in what the Fed’s hold means for borrowers. Axios noted the economy kept its momentum despite the Iran war and high energy prices, and the third-quarter price readings were much milder than the spring’s.

For the Boston area, two of the strongest spending categories in the report, health care services and prescription drugs, are core local industries, from the hospital systems to the drug makers whose quarterly results we track in our Boston company earnings scorecard. State-level GDP for the third quarter has not been published yet; BEA’s state estimates trail the national figures by several months.

What Comes Next

The advance estimate is the first of three. BEA will publish its second estimate of third-quarter GDP, along with corporate profits, on Nov. 25, 2026, at 8:30 a.m. ET, and the numbers can change as more complete data arrive. For a wider look at the week’s business news, see our Oct. 29 business report.

Sources

• U.S. Bureau of Economic Analysis: GDP (Advance Estimate), 3rd Quarter 2026
• BEA: Gross Domestic Product data page and release schedule
• Axios: U.S. economy races ahead with 3.4% growth in third quarter
• USA Today: US economic growth picked up in third quarter

Additional sources

• BEA Interactive Data: National Income and Product Accounts tables 1.1.1 and 1.5.2
• Federal Reserve Bank of Atlanta: GDPNow