The American economy grew at a 3.4% annual rate between July and September, its fastest pace in a year, according to the advance estimate the Bureau of Economic Analysis (BEA) released on Thursday, October 29, 2026. Growth in the second quarter had been 2.2%.
The same morning, the agency published September's personal income and outlays report. It showed the personal consumption expenditures (PCE) price index — the gauge the Federal Reserve watches most closely — running 3.6% above its level of a year earlier, with the core measure that strips out food and energy at 3.1%.
The two releases arrived a day after the Fed left its benchmark rate at 3.75%-4%, and five days before the November 3 midterm elections.
What drove the quarter
The acceleration came mainly from investment and from a turn upward in government spending, the BEA said, partly offset by a decline in exports.
- Investment rose, led by private inventory building and by equipment, particularly information processing equipment.
- Consumer spending increased in both services and goods. Health care and food services and accommodations led the services side; nondurable goods, mainly prescription drugs, led the goods side.
- Government spending rose on the federal nondefense side, which the agency tied to smaller sales from the Strategic Petroleum Reserve than in the second quarter.
- Exports fell, led by petroleum and related products, while imports — which subtract from the GDP calculation — grew faster than in the previous quarter, with capital goods excluding automotive the largest contributor.
Measured in current dollars, GDP rose 5.6%. Real final sales to private domestic purchasers, a measure that strips out inventories, trade and government and is often read as the economy's underlying pace, rose 4.9%, against 4.6% in the second quarter.
Two inflation readings that do not say the same thing
The quarterly and monthly numbers point in different directions, and the reason is arithmetic rather than contradiction.
Across the third quarter, the PCE price index rose at a 2.1% annual rate, down sharply from 5.0% in the second quarter; the core index slowed from 3.3% to 2.5%. Those figures compare the average of one quarter with the average of the previous one. The September reading — 3.6% headline, 3.1% core — compares a single month with the same month a year earlier, and so still carries the price increases of late 2025 and early 2026.
Within September alone, prices rose 0.5% from August, with core up 0.3%. That is a monthly pace well above what the Fed's 2% annual target implies.
Households spent more than they earned
September's income side was weak next to its spending side. Personal income rose $54.5 billion, or 0.2%, and disposable personal income rose $52.7 billion, also 0.2%. Consumer spending rose $113.1 billion, or 0.5% — more than twice the rate of income.
The personal saving rate fell to 3.8%, low by the standards of the past decade. Spending that outruns income tends to be financed out of savings or credit, and that combination is what makes the gap worth watching rather than the single month itself.
The advance GDP estimate rests in part on the Census Bureau's Advance Economic Indicators Report for September, and the BEA notes it will be superseded. The second estimate, together with corporate profits, is scheduled for November 25, 2026.
Reporting from the Bureau of Economic Analysis, Bloomberg, ABC News and CNBC.
