AI Investment and Consumer Spending Expected to Boost US Economic Growth

US economic growth is expected to have accelerated during the third quarter, supported by resilient consumer spending and increased business investment in artificial intelligence. Strong demand from households and technology companies is likely to have helped the economy absorb pressure from higher energy prices and a widening trade deficit.

Economists surveyed ahead of the government’s latest report forecast that US gross domestic product (GDP) would grow at an annualised rate of 3.2% during the quarter. This would mark an improvement from the 2.2% growth rate recorded in the second quarter.

The US Commerce Department is scheduled to release its advance estimate of third-quarter GDP, offering a clearer picture of economic performance amid concerns about living costs, inflation and the impact of the conflict in the Middle East.

AI Investment Becomes a Major Driver of Growth

Spending on artificial intelligence infrastructure and equipment is expected to have played an important role in supporting the US economy. Technology companies have continued investing in computing equipment, data centres and other infrastructure needed to develop and operate AI systems.

Business investment in equipment was expected to record another quarter of strong growth. Spending on intellectual property products, including software and related technology, may also have benefited from the expansion of AI.

However, rising costs and uncertainty about future returns have raised questions about how long companies can maintain their current pace of investment. Some technology firms have borrowed heavily to finance AI projects, creating potential financial risks if the expected returns fail to materialise.

Despite these concerns, economists expect AI-related investment to remain an important source of economic activity.

Consumer Spending Remains Strong Despite High Prices

Consumer spending, which accounts for more than two-thirds of the US economy, is another key factor supporting growth. Economists expected household spending to increase at an annualised rate above 3% during the third quarter, following stronger growth in the previous quarter.

Employment, wage increases and gains in the stock market have helped support household purchases. Higher-income consumers, in particular, have benefited from rising financial asset values.

However, many Americans remain concerned about the cost of groceries, fuel and other everyday necessities. Higher energy prices linked to the Middle East conflict have added pressure on household budgets.

Some households have also reduced their savings to maintain spending. Economists have warned that if energy prices remain high for an extended period, consumers may eventually cut back on purchases.

Trade Deficit Creates Pressure on GDP Growth

The widening US trade deficit is expected to have reduced overall economic growth during the quarter. Strong demand for imported capital goods, including equipment associated with AI investment, helped push imports to a record high in September.

Economists estimated that the trade shortfall could have subtracted several percentage points from GDP growth. However, stronger business investment and inventory accumulation may have offset part of the negative impact.

Trade figures can influence quarterly GDP because imports are deducted in the calculation. As a result, a rise in imports can weigh on reported growth even when businesses are importing equipment to expand their operations.

Higher Interest Rates Weigh on Housing Market

The housing sector is facing additional pressure from higher borrowing costs. Rising mortgage rates have made homeownership more difficult, particularly for younger adults and first-time buyers.

Residential investment was expected to contract during the third quarter as financing costs, construction expenses and labour shortages continued to challenge the sector.

At the same time, construction of data centres supporting AI development may have helped increase investment in non-residential buildings. A recovery in government spending was also expected to contribute to economic activity.

Federal Reserve Faces Inflation and Growth Challenges

The Federal Reserve faces the challenge of balancing economic growth with efforts to control inflation. Although economic activity has remained resilient, inflation continues to be a concern for policymakers.

Strong consumer demand and investment could support employment and business activity, but sustained demand may also make it harder to bring inflation under control.

Economists have also raised questions about the sustainability of growth driven heavily by AI investment and spending among wealthier households. If technology investment slows or consumers become more cautious, economic momentum could weaken.

The expected third-quarter performance suggests that the US economy has remained resilient despite higher prices and international uncertainty. However, the longer-term outlook will depend on consumer purchasing power, business investment decisions, trade conditions and the Federal Reserve’s future policy moves.