U.S. economy grows 3.4% as household finances lag behind

The U.S. economy grew 3.4% annualized in the third quarter, its fastest pace in a year, Commerce Department data show.

Household finances present a less comfortable comparison. Over the year through September, spending after inflation rose 2.5%, while disposable income increased 1%, according to the department, leaving consumption growing faster than the income supporting it.

That divergence frames the economic stakes as Americans approach Tuesday’s elections. President Trump faces an electorate benefiting from economic expansion, but workers’ average pay has barely kept ahead of prices since his return to office.

Households spend faster than income grows

Commerce Department figures show the household saving rate fell to 3.8% from 5.1% over the year through September. Consumers consequently retained a smaller portion of their income while continuing to increase purchases.

Labor Department figures show average hourly pay increased 5.5% between January 2025 and the latest reading, against a 5.4% increase in consumer prices over that period. The comparison helps distinguish rising dollar wages from purchasing power: almost the entire nominal increase was matched by higher prices.

Consumption remained the biggest source of third-quarter growth, increasing at an inflation-adjusted annualized pace of 3.8%, unchanged from the preceding quarter, according to the Commerce Department. Its separate monthly figures, however, showed no increase in real spending between August and September.

Barclays economist Jonathan Millar cautioned that the quarterly figures might overstate the economy’s underlying strength. He suggested summer online promotions and the World Cup might have temporarily supported purchases, rather than establishing a pace households could sustain.

Data centers dominate investment gains

The investment expansion was concentrated in technology infrastructure. Commerce Department figures attributed more than half the quarterly increase in business structures spending to data centers, while computers accounted for roughly two-thirds of the equipment spending increase.

Those shares describe the composition of additional investment, not the size of those industries within the whole economy. They also explain why a strong aggregate capital-spending figure does not necessarily indicate that factories, commercial properties and other business facilities are expanding together.

EY-Parthenon economist Gregory Daco described growth as concentrated, with exceptional performance in a small group of sectors and more ordinary conditions elsewhere. That assessment separates the strength of total output from the breadth of business activity.

Hiring anxiety complicates the expansion

Employment expectations offer another measure of household unease. In the September survey conducted by the New York Fed, respondents assigned a 44% probability to unemployment increasing over the following year; across the survey’s 13-year history, readings were substantially higher only briefly after the pandemic began.

JPMorgan Chase economist Michael Feroli said workers were becoming concerned about artificial intelligence, while the extent of technology-related displacement remained unclear. That distinction matters: anxiety about future employment is not evidence that AI has already caused a measurable amount of job loss.

If real income continues to lag consumption, sustaining the same spending pace would require households to draw further on savings or other resources. If consumption instead slows, businesses outside the AI investment cycle would face a less supportive source of demand.

If technology investment remains concentrated, continued GDP growth need not bring equally strong gains across industries. Subsequent income, consumption and investment readings will help establish whether the expansion is broadening or remains dependent on a narrower set of activities.