The U.S. economy expanded at an annualized rate of 3.4 percent in the third quarter of 2026, marking the fastest pace of growth in a year, according to preliminary data released by the Bureau of Economic Analysis on Thursday. This growth followed a 2.2 percent increase in the previous quarter and reflects continued robust spending by both businesses and consumers.

Business investment surged 12.7 percent in the July-to-September period, driven largely by expenditures related to artificial intelligence (AI). Spending on equipment, software, and data center infrastructure saw significant increases as major technology companies accelerated the nationwide build-out of AI capabilities. According to analysts, this AI-driven investment supported much of the upward momentum, although some economists caution that the long-term returns on these projects remain uncertain and future spending could moderate.

Consumer spending, which constitutes more than two-thirds of U.S. economic output, grew at a 3.8 percent annual rate for a second consecutive quarter. Despite persistent inflation and high prices, consumers continued to buy goods and services, including healthcare and dining out. However, the resilience in spending has come with trade-offs; households have reduced their saving rates to the lowest levels in nearly four years, dipping into savings to maintain their consumption amid rising living costs.

Inflation remains a significant issue, with consumer prices increasing approximately 3.5 percent compared to a year earlier. The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index, rose 0.5 percent in September alone, with core inflation (excluding food and energy) up 0.3 percent. Energy prices, influenced in part by geopolitical tensions in the Middle East, including the ongoing U.S.-Israel conflict with Iran, have contributed to elevated costs. Gasoline prices have remained consistently above $4 per gallon, adding pressure to household budgets.

While the reported growth data gives an optimistic picture of economic strength, public sentiment paints a different story. Polls preceding next week’s midterm elections reveal widespread voter dissatisfaction, with many Americans citing high inflation and cost of living as primary concerns. President Donald Trump and congressional Republicans have faced criticism for not effectively addressing affordability issues. This disconnect between headline economic growth and everyday experience is reflected in declining consumer confidence and record-low approval ratings for the president.

Trade dynamics also affected growth in the quarter. Imports increased sharply, partly due to frontloading of shipments ahead of tariffs and ongoing supply chain disruptions, resulting in a substantial negative contribution from net exports to GDP. Residential investment continued to drag on the economy amid high mortgage rates that have dampened home buying and construction activity.

The Federal Reserve maintained its benchmark interest rate in the 3.75 to 4 percent range last week but indicated that inflation remains a concern warranting potential rate increases at its December meeting. Fed Chair Kevin Warsh described the economy as “strong” but emphasized the need to keep inflation under control.

Looking ahead, economists expect overall growth to moderate in coming months, with inflationary pressures and the unwinding of some pandemic-era stimulus factors likely to slow momentum. Nonetheless, the current data underscore a complex economic landscape in which strong investment and spending coexist with persistent inflation and uneven public perception just days before the midterm elections.