WRAPUP 1-US economic growth accelerates in third quarter

‌The ​US economy grew faster than expected in the third quarter as resilient consumer spending and AI-driven business investment more than offset the impact of higher oil prices stemming from the conflict ‌in the Middle East. Gross domestic product increased at a 3.4% annualized rate last quarter, the Commerce Department's Bureau of Economic Analysis said in its advance estimate of third-quarter GDP on Thursday. Economists polled by Reuters had forecast GDP advancing at a 3.2% pace.

Estimates ranged from a 1.0% ‌growth rate to a 4.2% pace. The strength in growth is in stark contrast to households' downbeat assessment of the ‌economy, reflected in President Donald Trump's record-low approval ratings and a sharp deterioration in consumer sentiment. The report was published less than a week before Tuesday's midterm elections, which will determine control of Congress.

The economy is expanding at a pace that is well above what some Federal Reserve officials regard as the non-inflationary growth rate of ⁠around 2%. ​The US central bank on ⁠Wednesday left its benchmark interest rate in the 3.75%-4.00% range while acknowledging that inflation "remains elevated." Economists expected the Fed to raise rates in December. Fed Chairman Kevin Warsh ⁠told reporters "economic activity is expanding at a strong pace," noting that "while uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient."

Given the ​increasing dominance of AI-related spending, some economists said the strong GDP growth was probably not a true picture of the ⁠economy. Investors are increasingly focusing on the rising costs of long-term AI projects in which the payoff is uncertain. Tech firms have borrowed huge sums over the ⁠past year ​for AI spending, a potential downside risk to equipment spending. Still, economists did expect this pillar of support to weaken, though a pullback in spending was likely. Consumer spending, which accounts for more than two-thirds of the economy, increased at a 3.8% pace ⁠in the July-September quarter after growing at a 3.8% rate in the second quarter. Historically low layoffs and moderate hiring are helping ⁠to underpin spending, though wage gains ⁠have at times lagged inflation.

But households also have been saving less and dipping into their nest eggs to fund spending. With average gasoline prices still above $4 a gallon as the US-Israeli war ‌with Iran drags on, economists ‌anticipated a slowdown in consumer spending.