US growth hit 3.4% in Q3 — then September spending stalled

A strong headline, a large deduction

Real GDP increased at an annualised 3.4% in the third quarter of 2026, according to PNC Economics Research, up from 2.2% growth in the second quarter. Western Asset and ABN AMRO report the same 3.4% annualised figure, so the headline is not in dispute. m:…3388 m:…8812 m:…4820

The composition is where the story gets interesting. Net exports subtracted 3.32% from third-quarter growth, according to PNC, because imports surged 19.7% in the quarter, primarily due to AI and data centre construction. m:…3388

Western Asset makes the same point from the other side: a portion of third-quarter investment consisted of imported equipment, and the surge in capital spending has not boosted short-term GDP growth as much as expected because of the trade deficit. In other words, the country is building, but much of what it builds with arrives from abroad. m:…8812

Gross private domestic investment spending contributed 3.27% to third-quarter growth, according to PNC, and AI-related spending categories contributed 1.30% of that growth. Government spending added 0.90%, and inventories boosted growth by 1.61%. m:…3388

What drove the quarter

Consumer spending increased at an annualised 3.8% in the third quarter, according to PNC, and final sales to private domestic purchasers surged at a 4.9% annualised rate. ABN AMRO reports the same 4.9% figure for final sales, and notes that healthcare services were a major contributor to consumer spending gains. m:…3388 m:…4820

The investment detail is striking. ABN AMRO reports that nonresidential fixed investment grew by 12.7% in the third quarter, equipment investment rose by almost 21%, and computers and peripheral equipment investment rose by 67%. m:…4820

Western Asset attributes third-quarter growth to gains in business equipment investment, inventories and consumer spending on services. The picture is of firms equipping themselves at speed, with households spending on services alongside them. m:…8812

ABN AMRO describes AI-related business investment as the main driver of third-quarter GDP growth. That single sentence explains both the strength of the quarter and its fragility: if AI-linked equipment orders slow, the largest growth engine slows with them. m:…4820

Inflation cooled in the quarter, then picked up

The PCE price index rose 2.1% in the third quarter, down from 5.0% in the second quarter, according to PNC, and the core PCE price index slowed to 2.5% from 3.3% in the previous quarter. Western Asset reports the same 2.1% and 2.5% figures. m:…3388 m:…8812

Western Asset notes that third-quarter inflation was lower than the 4.7% average rate for the first half of 2026, and that flattening fuel prices contributed to the lower rate. The soft inflation numbers for the quarter were mainly due to mild July inflation data, according to Western Asset. m:…8812

September told a different story. Year-on-year overall PCE inflation was 3.6% in September 2026, according to PNC, and year-on-year core PCE inflation was 3.1%. Monthly overall PCE inflation was 0.5% and core inflation was 0.3%. m:…5816

ABN AMRO adds that income growth failed to keep pace with inflation. That gap is the bridge between the quarterly averages and the monthly experience of households. m:…4820

September went flat

Real consumer spending was flat in September 2026, according to PNC, and real after-tax income fell 0.3%. Nominal personal income rose 0.2% and nominal consumer spending rose 0.5%, but once prices are accounted for, the month was stagnant. m:…5816

Western Asset puts September real consumer spending growth at a 0.2% annualised rate, after August real consumer spending grew at a 6.8% annualised rate. The swing from August to September is sharp, and it is the main reason the quarter's strong average should not be read as momentum. m:…8812

The personal saving rate fell to 3.8% in September 2026, according to PNC, and real consumer durable goods spending fell 0.8%. Households spent, saved less, and still ended the month flat in real terms. m:…5816

PNC forecasts real GDP growth to remain around 2.0% through the second half of next year, and expects the Federal Open Market Committee to hike the federal funds rate by 25 basis points in December and March, taking the rate to a range of 4.25% to 4.50%. ABN AMRO also expects a December rate hike. The market, according to PNC, is pricing in an 83% probability of a December hike. The implication is that policymakers see the September inflation pickup, not just the quarterly average, and are leaning against it. m:…3388 m:…4820