U.S. economic growth was robust over the summer, as businesses poured money into investments related to artificial intelligence and consumers kept spending despite high prices.
Gross domestic product, the broadest measure of goods and services produced in the country, increased at a 3.4 percent annual rate in the third quarter, adjusted for inflation, the Bureau of Economic Analysis said Thursday.
That was an acceleration from the 2.2 percent rate in the spring, and was the fastest growth in a year. Consumer spending, which accounts for more than two-thirds of economic output, grew at a 3.8 percent rate.
The strong spending and growth figures contrast with the poor marks that many voters are giving the economy as they head to the ballot box for next week’s midterm elections. Polls consistently show that Americans are frustrated with the high cost of living and hold President Trump and congressional Republicans responsible for failing to deliver on their promises to improve affordability.
Those frustrations are grounded in reality. Consumer prices were up 3.5 percent in the third quarter from a year earlier, driven in part by high gas prices that are the direct result of Mr. Trump’s decision to go to war with Iran.
Still, the data released Thursday, which is preliminary, is the latest evidence that while Americans may be unhappy about inflation, they haven’t started to pull back their spending. That has helped keep the economy on track through a tumultuous period, but it could also be contributing to inflation by making it easier for businesses to pass on price increases to customers.
“This is a hot economy,” said Aditya Bhave, head of U.S. economics for Bank of America. “That’s the good news. The bad news is that inflation is the price we pay for that hot economy, and inflation is going to remain elevated.”
That could be a problem for officials at the Federal Reserve, who are trying to bring down inflation after five years above their goal of 2 percent annual price increases. On Wednesday, policymakers decided against raising interest rates for a second straight meeting, a gradual approach that some economists warn runs the risk of allowing inflation to become more entrenched.
The A.I. investment boom is responsible, directly and indirectly, for much of the economy’s resilience. Companies have invested hundreds of billions of dollars into building data centers and related infrastructure this year, with trillions more planned by 2030. That has rippled through the economy, lifting the fortunes not just of chipmakers and computer equipment manufacturers but also of companies seemingly far removed from the tech sector, like the producer of the gray paint used inside many data centers.
Investor enthusiasm for all things A.I. has also helped push up share prices, which, in turn, has supported consumer spending, especially among wealthy households. Economists disagree about exactly how big a role this “wealth effect” is playing in the strong spending figures, but few doubt that it is important.
The economy’s reliance on A.I. as a source of growth could turn into a vulnerability if the boom falters. Concerns have mounted in recent weeks as investors have begun to scrutinize some of the companies behind the A.I. build-out, and to raise questions about whether the massive spending will pay off.
“The way I look at the economy now is, in one word, fragile,” said Ryan Cummings, the chief of staff for the Stanford Institute for Economic Policy Research. “You have this fragile consumption happening from the stock-market gains. And the stock market gains themselves in my view are incredibly fragile.”
The post U.S. Economy Grew More Rapidly Over the Summer appeared first on New York Times.
