The U.S. economy is experiencing notable acceleration, driven by a surge in artificial intelligence (AI) development and strong consumer spending, even as it grapples with trade challenges, geopolitical tensions, and volatile markets. Economic growth outpaces that of other major advanced economies, but the benefits remain unevenly distributed.
According to the Commerce Department’s recent report, the economy expanded at a 3.4% annualized rate in the third quarter, marking its fastest growth in a year. Private demand grew even more robustly at a 4.9% annual pace, the strongest since 2021, when the nation was recovering from the pandemic downturn. Consumer spending was the largest contributor to GDP growth, increasing at a 3.8% annual rate for the second consecutive quarter after adjusting for inflation. Analysts attribute part of this spending boost to a notable rise in household wealth, fueled by the AI sector’s expansion. The S&P 500, despite recent investor concerns over AI risks, ended last week 11% higher than at the close of 2025.
Business investment also surged, with private nonresidential investment—inflation-adjusted capital spending—rising at a 12.7% annualized pace. AI-related segments showed particularly strong growth, with spending on computing equipment increasing by 67% and investments in data center construction soaring 127%. However, the booming AI investments appear to be crowding out other areas, such as residential construction, which has stagnated amid elevated borrowing costs, material expenses, and labor shortages. Housing has been further constrained as developers compete for resources with the growing demand for data centers.
The strong performance in consumer and business spending helped offset a widening trade deficit—largely due to imports of AI-related equipment—and ongoing weakness in the housing market. Still, the economic outlook remains mixed for many Americans, with public sentiment reflecting growing concern over the cost of living and economic management.
A recent poll indicates that 62% of respondents view the economy as poor or only fair, while 37% rate it positively. The survey also revealed that voters tend to trust Democrats more than Republicans when it comes to economic stewardship, with 51% of registered voters saying they plan to support Democrats compared to 44% for the Republican Party in the upcoming midterm elections.
Political analysts cite a model developed by Yale University economist Ray Fair, which incorporates GDP figures, inflation measures, and historical voting trends to forecast electoral outcomes. According to this model, Democrats could secure about 50.6% of the two-party vote share in House races, though their advantage may be offset by Republicans' district map advantages, potentially limiting Democratic gains in the House.
While polls signal a likelihood of Democratic control in both the House and Senate, the potential for surprise outcomes exists. Nonetheless, widespread dissatisfaction with economic conditions remains evident as Americans struggle with the slowed growth in real after-tax income, which increased by just 1% over the past year, while inflation-adjusted spending rose 2.5%. As a consequence, the personal savings rate has declined from 5.1% to 3.8%, indicating that many households may find sustaining current spending levels challenging moving forward.