GDP up 4.3% in the third quarter, consumer confidence declines

Real gross domestic product (GDP) for the 2025 third quarter rose 4.3%, above second quarter growth of 3.8%, and above the consensus estimate of 3.2%. Prices continued to rise. In a separate report, consumer sentiment continues to decline.

The U.S. Bureau of Economic Analysis (BEA) reported Tuesday (Dec. 23) that consumer spending on goods and services and an increase in government spending. Government spending was boosted by defense industry spending, according to the BEA report.

“The increase in consumer spending reflected increases in both services and goods,” noted the BEA report. “Within services, the leading contributors were health care and other services. Within goods, the leading contributors were recreational goods and vehicles as well as other nondurable goods.”

Health care spending gains were driven by outpatient services, and hospital and nursing home services, according to the report. Gains in international travel also boosted consumer spending in services. The gains were offset by declines in domestic investment and imports, according to the BEA.

Following are other notes in Tuesday’s GDP report.
• The price index for gross domestic purchases increased 3.4% in the third quarter, compared with an increase of 2% in the second quarter.
• The personal consumption expenditures (PCE) price index increased 2.8%, compared with an increase of 2.1% in the second quarter.
• Excluding food and energy prices, the PCE price index increased 2.9%, compared with an increase of 2.6% in the second quarter.
• Real gross domestic income (GDI) increased 2.4%, compared with an increase of 2.6% in the second quarter.
• Due to the recent government shutdown, this initial report for the third quarter of 2025 replaces the release of the advance estimate originally scheduled for Oct. 30 and the second estimate originally scheduled for Nov. 26.

James Knightley, the chief international economist at ING, said the economy is doing well for those in higher-income brackets.

“Looking at the details, the K-shaped economy is staring us right in the face,” he noted in his analysis after the GDP report was posted. “Notwithstanding today’s contribution from net trade, we’ve written a lot about the bifurcation in the household sector – the top 20% of households by income continue to spend strongly, boosted by high incomes and soaring wealth, while the bottom 60% are really struggling on concern about job security and the potential for tariff-induced price hikes. This goes a long way in explaining why spending is holding up yet confidence is so weak.”

Consumer confidence does continue to be weak. The Conference Board posted its closely-watched consumer confidence report after Tuesday’s GDP report.

“Despite an upward revision in November related to the end of the shutdown, consumer confidence fell again in December and remained well below this year’s January peak,” Dana Peterson, The Conference Board chief economist, noted. “Four of five components of the overall index fell, while one was at a level signaling notable weakness,”

Following are some of the items in the consumer confidence report.
• Consumers’ views of their Family’s Current Financial Situation fell into negative territory for the first time in nearly four years.
• Consumers were more cautious about plans for buying big-ticket items over the next six months.
• Overall buying plans for autos dipped again in December. On a six-month moving average basis, expectations for purchasing new cars continued to slip, but plans to buy used cars continued to climb.
• Plans to buy household appliances all dipped, as did purchasing plans for PCs and laptops, as well as video game consoles.
• Future spending plans for smartphones, tablets, and digital cameras continued to trend upward on a six-month moving average basis.