The US economy is expected to have expanded at a faster pace in the third quarter of 2026, supported by steady consumer spending and increased business investment in artificial intelligence infrastructure. These drivers likely helped offset the economic pressure from rising oil prices linked to the ongoing conflict in the Middle East, according to economists surveyed by Reuters.
The Commerce Department was scheduled to release its preliminary estimate of third-quarter gross domestic product (GDP) on Thursday, October 29, less than a week before the November 3 midterm elections that will determine control of Congress.
Economists projected that US GDP grew at an annualized rate of 3.2% during the July-September period, compared with a 2.2% expansion in the second quarter. However, the expected improvement in economic output contrasts with growing public dissatisfaction over the cost of living and weakening consumer confidence.
Gus Faucher, chief economist at PNC Financial, said households remained frustrated by expensive food and energy, but several economic factors continued to support spending. Employment growth, rising wages and a strong stock market have helped sustain consumption, particularly among wealthier households.
The anticipated growth also reflects the growing influence of artificial intelligence-related investment on the US economy. However, economists cautioned that the benefits of higher spending could be accompanied by risks, including mounting financing costs and uncertainty about whether technology companies will earn sufficient returns from their investments.
Trade Deficit Expected to Weigh on Growth
International trade was expected to be a significant drag on economic expansion during the third quarter. A report released on Wednesday showed that the US goods trade deficit widened as imports of capital equipment associated with the AI investment boom reached a record high.
The Reuters survey of economists had been conducted before those figures were published. Following the latest trade data, economists estimated that the trade shortfall could have reduced GDP growth by at least four percentage points.
Despite that pressure, investment in AI-related equipment was expected to provide substantial support. Business spending on equipment was projected to record its third consecutive quarter of double-digit growth. Investment in intellectual property products, including technology-related assets, was also expected to benefit from AI development.
Changes in business inventories were another factor likely to have contributed positively to overall economic output.
Gregory Daco, chief economist at EY-Parthenon, said AI-related investment was likely to remain an important source of US economic activity, even if companies became more selective about their spending. He acknowledged that concerns about future returns could prompt some businesses to reconsider their investment plans.
Technology companies have borrowed substantial amounts over the past year to finance AI infrastructure and development. Investors have increasingly questioned whether the expected commercial benefits will justify the scale of these commitments. Nevertheless, economists did not anticipate that such concerns would significantly undermine equipment investment during the third quarter.
Consumer Demand Remains a Major Economic Support
Household consumption, which accounts for more than two-thirds of US economic activity, was expected to have increased at an annualized rate exceeding 3% in the third quarter. That would represent a slowdown from the 3.8% growth recorded in the previous quarter, but would still indicate relatively strong demand.
Low levels of layoffs and moderate hiring have helped maintain household spending, although wage increases have sometimes failed to keep pace with inflation.
Consumers have also been saving a smaller share of their income and drawing on accumulated savings to finance purchases. Rising energy costs have added pressure, with average US gasoline prices remaining above $4 per gallon as the conflict involving the United States, Israel and Iran continued.
Stephen Stanley, chief US economist at Santander US Capital Markets, said households appeared to have initially assumed that the increase in energy prices following the conflict’s outbreak earlier in the year would be temporary. If elevated prices persist, consumers could eventually be forced to reduce spending.
This creates uncertainty about whether consumption can continue supporting economic growth at its current pace, particularly if households face further increases in essential expenses.
Housing Faces Higher Costs and Construction Challenges
Residential investment was expected to have contracted again in the third quarter as higher mortgage rates discouraged home purchases and construction. The increase in borrowing costs, associated with developments in the Middle East, has offset some relief from moderating house prices.
Homeownership has consequently remained difficult for younger adults, while residential construction has faced additional obstacles from shortages of land and workers. Immigration restrictions have contributed to labor constraints, and tariffs on imported materials have increased building costs.
By contrast, construction of data centers supporting artificial intelligence was expected to boost investment in nonresidential structures after stabilizing in the second quarter. Government spending was also forecast to recover during the period.
A measure of domestic demand that excludes inventories, international trade and government spending was expected to show a substantial increase. Final sales to private domestic purchasers grew at an annualized rate of 4.6% in the second quarter.
Growth Outlook Raises Questions About Sustainability
The Federal Reserve left its benchmark interest rate unchanged at 3.75%-4.00% on Wednesday, while acknowledging that inflation remained elevated. The economy’s projected expansion was above the roughly 2% growth rate some Fed officials consider consistent with avoiding additional inflationary pressure.
Federal Reserve Chair Kevin Warsh said economic activity was expanding strongly, adding that domestic spending had remained resilient despite uncertainty surrounding geopolitical developments. Economists expected the central bank to raise rates in December.
Dean Baker, senior economist at the Center for Economic and Policy Research, said the expansion was being supported largely by AI investment and consumption among households benefiting from rising stock market wealth. He questioned how long those forces could sustain growth and argued that the pattern offered limited benefits to many working people.
The third-quarter figures are therefore expected to illustrate an economy supported by technological investment and household demand, while facing persistent challenges from inflation, trade imbalances, housing costs and uncertainty over the long-term returns from AI spending.
