Real GDP (Q3-2025, initial estimate)

U.S. economy remains strong in Q3, with GDP rising 4.3%

After having been delayed by nearly two months because of the government shutdown, this morning the Bureau of Economic Analysis released its initial estimate of Q3 GDP (replacing both the advance and second estimates) and a preliminary reading of corporate profits (normally released with the second estimate of GDP).

• The U.S. economy expanded by 4.3% quarter-on-quarter (q/q, annualized) in the third quarter – well above the consensus forecast of 3.2% – and a modest acceleration from Q2's 3.8%.
• Consumer spending rose a healthy 3.5% q/q, following a smaller gain of 2.5% in Q2. Both goods (+3.1%) and services (+3.7%) spending was higher on the quarter. 
• Business investment rose 2.8% q/q, marking a deceleration from a very strong first half of the year. In terms of the breakdown, both equipment (+5.4%) and intellectual property products (+5.4%) were higher, while spending on structures (-6.3% q/q) declined for a seventh consecutive quarter. 
• Residential investment declined 5.1% q/q, as both homebuilding and sales activity remained subdued.
• Government spending rose a 2.2%, with both federal (+2.9%) and state & local spending (+1.8%) higher on the quarter. 
• International trade had a smaller (but still meaningful) influence on Q3 GDP. Imports fell 4.7% q/q while exports rose 8.8% q/q, resulting in net exports adding 1.6 percentage points (pp) to growth. Meanwhile, inventory investment shaved 0.2pp.  
• Final sales to private domestic purchasers, a better gauge of underlying demand as it includes only household consumption and fixed investment rose to 3.0%, following a similar gain in Q2. 
• Real Gross Domestic Income (GDI) – an alternative measure of economic output – rose 2.4% after rising a similar 2.6% in Q2. Corporate profits rose 18% annualized or $166 billion after accounting for inventory valuation and capital consumption adjustments. Personal income was up 3.3%, as employee compensation rose 3.8%.

Key Implications

• The U.S. economy maintained considerable momentum in the third quarter, despite headwinds. Consumer spending recorded another solid quarter, while capital expenditures continued to expand at healthy clip, aided by further investments in AI but also some broadening to more traditional forms of equipment spending.
• As we round the corner to close out 2025, today's Q3 GDP data feels somewhat stale. We know Q4 got off to a very rocky start, as a record long six-week government shutdown resulted in over 650,000 federal employees being temporarily furloughed without pay. This will exert a meaningful drag on near-term activity, with Q4 growth likely to slow to a sub-1%. However, these effects should reverse in Q1-2026, with growth expected to rise closer to a "trend-like" 2% pace.

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