News Analysis
The U.S. economy may be doing more than weathering recent shocks. A fresh batch of economic data points to broad-based strength.
Gross domestic product expanded at a 3.4 percent annualized rate in the third quarter, topping economists’ expectations and marking a pickup from the previous quarter’s 2.2 percent pace.
Concerns have grown that America’s economic expansion is heavily reliant on the artificial intelligence (AI) boom. However, GDP data indicate growth is being supported by a range of factors beyond technology investment alone.
Last quarter’s growth was supported by ongoing business investment and robust consumer spending on durable and nondurable goods and services. The economy also benefited from private inventory purchases and federal government outlays.
The United States could enjoy a solid fourth quarter as well. Early forecasts expect growth above 2 percent, driven by many of the same factors this year.
The stronger-than-expected GDP report was complemented by another week of lower unemployment claims, as employers continue to avoid mass layoffs.
Initial jobless claims fell to 194,000 for the week ending Oct. 24—well below the consensus estimate—and are near the lowest level in 57 years, according to the Department of Labor. This also marked the sixth time in seven weeks that claims are below 200,000.
Continuing jobless claims—the number of Americans currently receiving unemployment benefits—also fell to 1.7 million, the lowest in more than three years.
“The economy is on fire right now. The problem is that some people are conflating inflation [and] growth at the moment,” Jamie Cox, managing partner for Harris Financial Group, told The Epoch Times in an emailed note.
And there lies the rub for the U.S. economy: inflation.
The Next Chapter in Inflation
The latest inflation update suggested price pressures still show no signs of easing.
September’s Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve’s preferred inflation gauge—jumped to 3.6 percent from a year ago. Annual core PCE inflation, which excludes volatile energy and food, also ticked up to 3.1 percent.
Since the war in Iran began in late February, higher global energy prices have been the main catalyst behind the resurgence in inflation.
With the Middle East conflict at a stalemate, crude oil prices remain firmly above $100 per barrel. Brent, the global seaborne benchmark, is inching closer to $120 in overseas trading.
The good news for motorists is that national gasoline prices have drifted lower even as crude oil has remained elevated.
As of Oct. 29, the national average for a gallon of gasoline is below $4.23, according to the American Automobile Association. This is down more than 20 cents from a month ago.
As gas prices fell, consumer confidence in current and future economic conditions rebounded sharply this month. The Conference Board’s Consumer Confidence Index rose to a four-month high, but more Americans planned to be more cautious about their spending on durable goods and services over the next six months.
“This likely reflected higher price levels and persistent inflation, which eroded consumers’ purchasing power,” Fergus McCormick, senior economist at The Conference Board, said in a news release.
While overall growth remains strong, some households continue to feel pressure from inflation that has outpaced wage gains. Bureau of Labor Statistics data show real (inflation-adjusted) hourly earnings fell by 0.7 percent in the 12 months ending September 2026.
Ultimately, the data suggest that higher headline inflation has already done some damage, says Bill Adams, chief U.S. economist at Fifth Third Commercial Bank.
“Higher prices accounted for all of last month’s increase in consumer spending. Real incomes fell and pushed the saving rate down to a new multiyear low,” Adams said in an emailed note to The Epoch Times.
Underlying inflation pressures remain tame, and economists debate whether the war-driven oil-price shock is filtering into broader economic conditions.
The Treasury expects core PCE inflation to ease toward 2 percent in 2027 when global energy prices stabilize, The Epoch Times has learned. Headline inflation could move even lower, potentially to around 1 percent.
Depending on the dataset, October’s numbers could show inflation plateauing or continuing to creep higher.
The Cleveland Fed’s Nowcasting Model expects the Consumer Price Index to show the annual inflation rate unchanged at 3.7 percent and core inflation sliding to 2.5 percent.
Conversely, PCE and core PCE inflation are forecast to tick up to 3.8 percent and 3.2 percent, respectively.
The Fed’s Playbook
The Federal Reserve is also optimistic that its go-to inflation yardstick will slow next year.
In September’s Summary of Economic Projections—a quarterly outlook for policy and the economy—policymakers anticipated headline PCE inflation to be 2.3 percent and core PCE inflation to be 2.5 percent in 2027.
Fed Chairman Kevin Warsh reaffirmed the Fed’s goal of returning inflation to its 2 percent target. Although the Fed did not follow through with back-to-back rate hikes at the Oct. 28 meeting, traders widely expect another quarter-point increase in December.
“Inflation remains above the Fed’s target, and run-rate GDP growth appears to be at acceptable levels. There’s still a long list of reasons to believe the Fed will continue to bring its target rate higher,” Larry Holzenthaler, senior portfolio manager at Catalyst Funds, told The Epoch Times in an emailed note.
Despite the Fed’s goal of fighting inflation, a chorus of economists fears that tightening monetary policy amid a supply shock could threaten growth prospects and harm credit conditions for businesses, consumers, and investors.
James Thorne, chief market strategist at Wellington Altus, said in an Oct. 28 social media post that the evidence for aggressive tightening is weak, considering that trimmed inflation—removing outliers—is tepid.
“Have yet to hear the Fed or Wall St pundits that advocate for higher rates show any evidence that the oil shock we are experiencing is permanent!” he said on X.
