Despite everything being hurled at the economy in 2025—punishing tariffs, increased inflation, and rising unemployment—the United States may still be growing faster than usual, which is a sign of unexpected fortitude.
When the report is released on Tuesday, the official economic scorecard, the gross domestic product, is expected to expand by 3.2% annually in the third quarter. The government shutdown caused a two-month delay in the GDP report.
In the second quarter, the U.S. expanded at a bubbly 3.8% rate as well.
The U.S. can only grow 1.8% annually under perfect circumstances, according to the majority of Wall Street SPX DJIA economists, which makes its recent performance all the more shocking.
Furthermore, a rare negative GDP print in the first quarter that appeared to portend trouble ahead due to the heaviest U.S. tariffs in decades was followed by a fast economic recovery in the middle of the year.
Before President Trump’s tariffs increased prices, American companies rushed to purchase foreign supplies and goods early in the year. GDP was negatively impacted by the historic increase in trade deficits.
However, in order to benefit from brief tariff reductions or delays, American households scheduled their purchases of expensive imports like cars, appliances, and other commodities throughout the spring and summer.
The primary driver of the GDP increase was the increase in consumer spending, which is the largest driver of economic growth.
Household spending is higher than anticipated even if one ignores the impact of tariffs on consumer purchasing patterns.
Why?
For starters, incomes are increasing marginally more quickly than inflation.
In contrast, although unemployment has increased to a four-year high of 4.6%, it is still historically low. The majority of people feel safe in their jobs, which gives them the confidence to spend, and layoffs have remained incredibly low.
Last but not least, a booming bull market has increased the wealth of wealthy families, creating what economists refer to as a divided economy. Families in the middle and lower income brackets are finding it difficult to keep up with the wealthy, who continue to spend lavishly.
Will there be more of the same in the fourth quarter? According to analysts, the record 43-day government shutdown that left hundreds of thousands of federal employees underpaid looks to have contributed to the slowdown in consumer spending during the fourth quarter.
In such case, GDP growth is also probably going to slow down.
However, most important economic statistics have been postponed until early 2026 due to the now-ending impasse, so it might be some time before anyone knows for sure.
Avery Shenfeld, chief economist at CIBC Capital Markets, stated, “We have little data at this point, but a slowing to our projected 1.5% pace would be largely tied to a dent from the government shutdown.”
The startling rise in corporate expenditure on artificial intelligence, which has reached hundreds of billions of dollars, has been the other key driver of U.S. growth this year.
AI spending has more than made up for shortcomings in other manufactured goods production and investment outside of the IT sector. Traditional manufacturers have been particularly penalized by tariffs.
Some economists contend that the U.S. may be able to develop much more quickly than what they consider to be its 1.8% annual speed limit, in large part because of the adoption of AI.
They claim that businesses are becoming more profitable and productive thanks to the new technology, which helps the economy as a whole.
Lower interest rates, loosened tariffs, fewer taxes and regulations, and increased government spending in a midterm election year should all help the new year.
The Federal Reserve recently increased its GDP growth projection for 2026 from 1.8% to 2.3% in light of these new realities. For the Fed’s typically cautious analysts, that is a significant change.
On Wall Street, many individuals are also on board.
In a note to investors, Nomura analysts stated, “We expect a reacceleration in growth going into 2026.”
