U.S. GDP ticks higher in the third quarter

The U.S. economy grew slightly more than expected in the third quarter, with incomes rising less than overall growth, and inflation unchanged from estimates, according to the gross domestic product (GDP) report posted Thursday (Jan. 22) by the U.S. Bureau of Economic Analysis (BEA).

Real GDP rose at an annual rate of 4.4% in the third quarter, up slightly from the previous estimate of 4.3%. The GDP rose 3.8% in the second quarter.

“The increase in real GDP in the third quarter reflected increases in consumer spending, exports, government spending, and investment,” the report noted. “Imports, which are a subtraction in the calculation of GDP, decreased.”

Output, a key component of overall GDP, was up 3.2% in the third quarter, with private services rising 4.4% and government services up 2.1%. However, the manufacturing sector had a dip of 0.1% in the quarter.

“The small upward revision to Q3 GDP does not move the needle much on the economic outlook,” Michael Pearce, chief U.S. economist at Oxford Economics. “We still expect the economy to slow in Q4, as the shutdown and a drop in auto sales weigh on activity, but the swings in net trade and inventories driven by shifts in timing of shipments around tariff deadlines pose an upside risk.”

Following are other key data points in Thursday’s GDP report.
• The price index for gross domestic purchases rose 3.4% in the third quarter, unchanged from the estimate. The personal consumption expenditures (PCE) price index was up 2.8%, and the PCE price index excluding food and energy rose 2.9%

• Real gross domestic income (GDI) was up 2.4% in the third quarter, also unchanged from the previous estimate. The average of real GDP and real GDI increased 3.4%.

• Profits from current production – corporate profits with inventory valuation and capital consumption adjustments – rose $175.6 billion in the third quarter, an upward revision of $9.5 billion.

• Within exports, the upward revision was primarily with goods, non-automotive capital goods, industrial supplies and materials, foods, feeds, and beverages.

• Within imports, the revision reflected an upward revision to manufactured goods, primarily automotive vehicles, engines, and parts.

David Mericle, a chief U.S. economist with Goldman Sachs, has a somewhat bullish take on economic conditions in 2026.

“Our strongest conviction views for 2026 are our above-consensus GDP growth forecast and our below-consensus inflation forecast,” he noted in a company report. “The outlook for the labor market is more uncertain – we expect it to stabilize but see the possibility of further softening as the key risk for 2026.”

The GDPNow forecast by the Federal Reserve Bank of Atlanta also is bullish. The estimated forecast reported Thursday is for fourth quarter GDP at a seasonally adjusted annual rate of 5.4%, up from 5.3% on Jan. 14.