US GDP growth is expected to accelerate to 3.2% in the third quarter: the AI investment boom supports growth, but the public's “experience” is poor

The Zhitong Finance App notes that the growth rate of the US economy is likely to accelerate in the third quarter, as resilient consumer spending and AI-driven corporate investment are sufficient to offset the impact of rising oil prices caused by the Middle East conflict.

The strong performance of this expectation will be in stark contrast to the pessimistic assessment of the economy by households, which is reflected in President Trump's approval ratings falling to record lows and a sharp deterioration in consumer confidence. The US Department of Commerce will announce the preliminary gross domestic product (GDP) for the third quarter on Thursday. It is less than a week until next Tuesday's midterm elections, which will determine congressional control.

Gus Forcher, chief economist at PNC Finance, said, “People are very dissatisfied with high energy and food prices, but consumer fundamentals are still good. We still have employment growth, rising wages, and a strong stock market, which particularly supports the spending of high-income households, so consumers are still increasing their spending at a fairly steady pace.”

According to a Reuters survey of economists, GDP could grow at an annual rate of 3.2% in the last quarter. The economic growth rate for the April-June quarter was 2.2%. However, the survey was conducted before the September Leading Economic Indicators Report was released on Wednesday. The report shows that strong demand for capital goods associated with the AI spending boom has driven imports to record highs, and the commodity trade deficit widened as a result.

Economists estimate that the trade deficit dragged down GDP growth by at least 4 percentage points last quarter. However, this drag may be weakened by investment related to artificial intelligence, and enterprise equipment spending is expected to have achieved double-digit growth for the third consecutive quarter.

Artificial intelligence may also be boosting spending on intellectual property products. Inventories are also expected to contribute to GDP growth in the last quarter.

Investors are increasingly concerned about the rising costs of long-term AI projects with uncertain returns. Over the past year, tech companies have borrowed huge sums of money to spend on artificial intelligence, which poses a potential downside risk for equipment spending. Despite this, economists don't think this will hinder economic development.

Gregory Dacko, chief economist at EY Parthenon, said, “There may be more careful consideration in the future when it comes to investing in artificial intelligence, but the potential momentum is still quite strong. Artificial intelligence-related investments are likely to remain a key pillar of US economic activity, even with some downside risks and some questions about the overall return on investment.”

The rate of expansion of the US economy is far higher than what some Federal Reserve officials believe is a non-inflationary growth rate of about 2%. The Federal Reserve kept the benchmark interest rate in the 3.75% to 4.00% range on Wednesday, while admitting that inflation is “still too high.”

Economists expect the Federal Reserve to raise interest rates in December. Federal Reserve Chairman Kevin Walsh told reporters that “economic activity is expanding strongly” and pointed out that “although uncertainty still exists due in part to geopolitical developments, domestic spending has always been resilient.”

Consumer spending is expected to be strong

Consumer spending, which accounts for more than two-thirds of the economy, is expected to grow by more than 3.0% in the previous quarter after growing 3.8% in the second quarter. Historically low layoffs and moderate recruitment are helping to support consumption, although wage increases sometimes lag behind inflation.

Households have been cutting back on their savings and using their savings to support expenses. As the war between the US, Israel, and Iran continues, the average price of gasoline is still above $4 per gallon, and economists had anticipated a decline in consumer spending.

Stephen Stanley, chief US economist at Santander's US Capital Market, said: “It appears that households made a decision when the conflict broke out earlier this year, believing that the increase in energy prices was likely temporary. This judgment may prove wrong, so consumers may need to tighten their belts at some point.”

Mortgage interest rates, which have risen due to the Middle East conflict, are expected to push residential investment back into the contraction range in the last quarter. Higher borrowing costs have overshadowed the impact of the slowdown in housing price increases, making it difficult for young adults to buy a home.

Housing construction is also constrained by land and labor shortages (due to tighter immigration policies) and import tariffs driving up material prices. The construction of data centers to support artificial intelligence may have boosted commercial investment in the non-residential construction sector after stabilizing in the second quarter. Government spending is expected to rebound.

An indicator of domestic demand that excludes inventory, trade and government spending, is expected to rise sharply in the last quarter. Final sales to private domestic buyers increased 4.6% in the second quarter.

Dean Beck, a senior economist at the Center for Economic and Policy Research, said, “The overall situation is that the economy is growing at a good rate, but the main factors are the investment boom driven by artificial intelligence and consumption, which is mainly driven by the growth of wealth in the stock market. It's unclear how long this will last, but it's not a very stable picture, nor a very positive picture for most working people.”