WASHINGTON, D.C.: American consumers once again proved to be the backbone of the U.S. economy, pushing growth to its fastest pace in two years even as inflation remains elevated and economic uncertainty persists.

The economy expanded at a robust 4.3 percent annual rate from July through September, the strongest showing since 2023, according to a report released on December 23 by the U.S. Commerce Department. The report had been delayed by the government shutdown. Growth accelerated from a 3.8 percent pace in the April–June quarter and easily beat economists' expectations of about three percent, according to FactSet.

Consumer spending continued to provide the main thrust. Household expenditures, which account for roughly 70 percent of U.S. economic activity, climbed at a 3.5 percent annual rate in the third quarter, up from 2.5 percent in the previous quarter.

Some economists caution that the surge may not last. The ongoing government shutdown is expected to weigh on growth in the final months of the year, while many households are showing signs of fatigue after years of high inflation.

A survey released by the Conference Board showed consumer confidence sliding to levels not seen since the U.S. imposed sweeping tariffs on trading partners in April.

"The jump in consumer spending reminds me a lot of last year's (fourth quarter)," said Stephen Stanley, chief U.S. economist at Santander. "Consumers were stretching. So, as was the case entering this year, households probably need to take a breather soon."

The gap between how consumers feel and how much they continue to spend reflects what economists describe as a "K-shaped economy," in which wealthier households benefit from stock market gains and investments while lower-income Americans struggle with higher prices and slower wage growth.

"The latest data on household spending indicates continued strong gains in consumer spending, particularly on services," wrote Michael Pearce, chief U.S. economist at Oxford Economics. "We think that reflects the K-shaped consumer recovery, with spending growth driven by older, wealthier households while those on low and more moderate incomes struggle."

Inflation, however, remains above the Federal Reserve's comfort zone. The personal consumption expenditures index, the Fed's preferred inflation measure, rose at a 2.8 percent annual pace in the third quarter, up from 2.1 percent in the previous period.

Economists say stubborn inflation could reduce the likelihood of an interest rate cut in January, even as policymakers remain concerned about a cooling labor market.

"If the economy keeps producing at this level, then there isn't as much need to worry about a slowing economy," said Chris Zaccarelli, chief investment officer at Northlight Asset Management, warning that inflation could re-emerge as the biggest threat.

The report also highlighted continued momentum in artificial intelligence-related investment. Spending on intellectual property, which includes AI, rose 5.4 percent in the third quarter, following a 15 percent jump in the second quarter.

Government consumption and investment increased 2.2 percent, helped by higher state, local, and federal defense spending. Private business investment slipped 0.3 percent, a much smaller decline than the sharp drop recorded in the previous quarter.

Exports grew at an 8.8 percent pace, while imports fell 4.7 percent.

Despite higher borrowing costs imposed in 2022 and 2023, the economy has largely maintained solid growth. The Fed cut its benchmark rate three times toward the end of 2025, citing concern over a labor market that has steadily lost momentum.

The unemployment rate rose to 4.6 percent in November, its highest level since 2021, underscoring the delicate balance policymakers now face between sustaining growth and containing inflation.