U.S. GDP Growth Surges Toward 4% in Q3 Amid Strong Consumer Spending

The U.S. economy is starting to run hotter than previously thought, and now looks likely to clock growth of as much as 4% in the third quarter. Shrugging aside persistent fears of a recession from some analysts, new data underscores strengthening momentum built largely on resilient consumer demand.

Solid Q2 Lays the Groundwork for Q3 Advances

The Commerce Department revised second-quarter G.D.P. growth upward, to 3.8 percent, from the previously reported 3.3, on strong consumer spending. This recovery came after a softened first quarter plagued by trade tensions.

New data indicates that the economy gained even more steam during in the months leading to Q3. Orders for durable goods in August topped estimates and the personal income and spending report indicated robust consumption trends, buoying household demand.

These increases more than offset continued softness in housing, where high home prices and rising mortgage rates are covering a wet blanket over activity because consumer spending accounts for more than two-thirds of the nation’s economy.

“Fed” Tracker Pointing to Nearly 4% Growth

The Atlanta Fed’s GDPNow tracker now suggests third-quarter growth at 3.9% compared with 3.3% earlier, and that is buoyed by strong consumption numbers and a tighter trade deficit. Even breaking the 4% barrier is possible, some economists say.

“Spending that on all but the most essential products — apparel, durable goods and nondurables — has held up incredibly strong,” said Stephen Brown, Deputy Chief North America Economist at Capital Economics. And crucially, despite the surge in spending of late relative to income, the savings rate for U.S. households was at 4.6 percent in August, suggesting families are not overstretched.

“With the stronger momentum into quarter three, we’ve now got consumption growth tracking at 3.3%, up from 2.3% last week,” Brown said. “Third-quarter GDP growth is going to be as high is 4%.”

Implications for the Federal Reserve

Faster growth in G.D.P. lowers the urgency for the Federal Reserve to be aggressive with its interest-rate cuts. Capital Economics anticipates just one more rate cut before the end of the year, versus Wall Street’s consensus for two cuts. This discrepancy underscores uncertainty about how policy makers will weigh robust growth against lingering inflation risks.

Recession Concerns Still Linger

Not everyone shares the optimism. According to Mark Zandi, chief economist of Moody’s Analytics even though numbers for Q3 look good, the United States would become at “significantly elevated” risk of recession later this year and in early 2026 when tariffs and immigration strictures worked their way through the economy.

Housing remains a key vulnerability. Building permits — often a leading indicator of economic slumps — are near pandemic-era lows.

What’s more, the strength in consumer spending obscures differences across income groups. The top 20 percent of income earners have driven consumption growth, while the bottom 80 percent has largely treading water; according to Moody’s,1616According to a highlight from The New York Times: In other words, the personal posts are right — growth in consumer spending is indeed increasingly concentrated among the very rich.

“The economy is going to remain in slow gear, but as long as high income households are out there continuing to spend, we should avoid recession,” Zandi warned. “But if they do pull back, the risks are very significant.”

The U.S. economy is bouncing back far faster than expected, and Q3 growth may be the best seen in years. Although strong consumer spending has helped to keep momentum alive, uneven advances and headwinds in housing markets underscore the fragility beneath the surface. For policy makers, investors and home owners, the coming months will be crucial for determining whether this expansion can be sustained — or if risks of recession will finally catch up.