C-Suite Insights from the Economy, Strategy & Finance Center

Robust Q3 GDP: Finding a Signal in the Noise

Analysis by Yelena Shulyatyeva, Senior US Economist

Trusted Insights for What’s Ahead®

  • Real GDP grew by 4.3% q/q SAAR in Q3, the fastest pace of growth in the US economy in two years, suggesting upside to our 2025 GDP forecast of 1.9% y/y. The published reading significantly exceeded most economists’ projections, including our own. 

  • However, difficulties with data collection during and after the shutdown may have influenced some of the results. Plus, some source data releases are still lagged.

  • For example, GDP growth was bolstered by resilient consumer spending and imports fell, but inventories did not shrink consistent with these movements.

  • A sharp slowdown in inflation adjusted personal income to 0.0% q/q SAAR in Q3 bodes ill for growth in consumer spending going forward.

  • We continue to expect a significant slowdown in the economy in the final quarter of 2025 driven by the government shutdown and the beginning of 2026 due to continued deterioration in inflation-adjusted personal income.

  • The Bureau of Economic Analysis will release a revised reading on January 22nd 2026. The report will provide a more accurate read on inventories, which we think subtracted significantly more from growth in Q3.

  • Due to the federal government shutdown, there will only be two releases of Q3 GDP instead of typical three.

Figure 1. Strong Consumer Spending Boosts GDP Growth    

gdp-q3-2025-1Source: BEA, Haver Analytics, The Conference Board, 2025

Key Takeaways

Strong Headline May Mask Some Inconsistencies

Real GDP grew by 4.3% q/q SAAR in Q3 (vs. 3.8% in Q2). Personal consumption was the main driver contributing 2.4pp to headline growth. Growth in final sales to domestic purchasers (GDP excluding trade and inventories’ contributions) advanced at a slower 2.9% q/q SAAR rate, which in our view was a more reasonable estimate of growth in Q3. Moreover, we are somewhat skeptical about the 1.6pp contribution from net trade but only 0.2pp offset from inventories. Real exports jumped by 12.1% q/q SAAR, driven by exports of services, while imports dropped by 4.2%.

The results could have been skewed by an incomplete set of data and difficulties collecting it during the government shutdown. While growth could have been stronger in Q3 than anticipated, we need to see more data to confirm the reading.

Consumers Continued to Spend in Q3

Consumer spending surged by 3.5% in Q3 above the 2.5% pace registered in Q2. Consumer spending continued to be driven by robust spending on services. Goods consumption continued to rise, but to a lesser extent. 

Inflation-adjusted disposable personal income growth, the essential fuel needed to support growth in consumer spending, was 0.0% q/q SAAR in Q3, down from 1.8% in Q2, and lowest reading since Q2 2022. Sustained strength in consumer spending would require stronger growth in real income going forward.

Figure 2. Slowing Income Growth Portends Weaker Spending 

gdp-q3-2025-2Source: BEA, Haver Analytics, The Conference Board, 2025

Business Investment Slows

Business investment slowed to 2.8% q/q SAAR (vs. 7.3% prior) as structures continued to decline (-6.3%, vs. -7.5% prior). Investment in equipment grew at a solid but slower 5.4% pace (vs. 8.5% prior), as did intellectual-property products (5.4% vs. 15.0% prior).

Many crosscurrents are affecting business investment. Continued uncertainty about tariffs may weigh on future growth. Fiscal legislation could prompt growth in some sectors, while making investment in other areas less attractive. We see business investment continuing to grow in 2026, albeit at a moderate pace.

Residential Investment Continues to Flag Due to Affordability Issues

Residential investment declined by 5.1% q/q SAAR, a similar pace as in Q2. Despite lower mortgage rates, property prices remain elevated as housing supply remains insufficient. We remain relatively pessimistic about a housing renaissance in 2026, despite renewed focus on resolving affordability issues.

Government Adds to Growth Ahead of Shutdown

Government spending added to the headline. Spending increased 2.2% q/q SAAR (vs. -0.1% prior), with federal spending up 2.9%, driven by defense (up 5.8%). State and local government spending cooled to 1.8% (vs. 3.1% prior).

 

 

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