As we approach the end of the third quarter of 2025, a wealth of economic data offers timely insights into the state of the US economy. The latest findings indicate that while challenges exist, many fundamental metrics remain resilient, shaping a complex picture of growth and consumer behavior. Here, we summarize key developments and themes that have emerged from recent reports and analyses.
1. Revised GDP Figures Reflect Strong Consumer Spending
The Bureau of Economic Analysis recently released its third estimate of Q2 GDP, noting an annualized growth rate of 3.8%, up from previous estimates of 3.3% and 3.0%. This upward revision largely stemmed from unexpected strength in consumer spending, particularly on services, which contributed 1.7 percentage points to overall GDP. This reinforces the notion that consumer behavior remains a cornerstone of economic performance, even amid other uncertainties.
While it is crucial to note that GDP figures can be backward-looking and subject to significant revisions, they serve as a barometer for the current economic climate. Investors often look beyond these figures, with markets generally pricing in expected economic conditions months in advance. Therefore, while GDP growth offers a snapshot of the economy, market performance may indicate that investors are more optimistic than the numbers alone suggest.
2. The Impact of AI Investment
A noteworthy aspect of the latest GDP report is the insight into artificial intelligence (AI) investments, which have become increasingly significant in the current economic landscape. Investment in information processing equipment and software—an indicator of AI expenditure—grew 4.6% in Q2, contrasting with a stagnant performance from other business investments during the same period.
Over the past few years, the growth of AI-related investments has outpaced traditional fixed business investments, contributing to a broader technological renaissance. Businesses are recognizing the need to adapt to technological advancements. However, it’s imperative to understand that while AI is a substantial driving force, it is not the sole contributor to economic growth.
3. Tariffs: An Overestimated Threat to Inflation
Throughout 2025, analysts have expressed concerns that government-imposed tariffs might reignite inflation, adversely impacting consumer purchasing power. However, the evidence collected so far suggests that this fear may be overstated. Data from S&P Global indicates that, while manufacturers have acknowledged higher input costs due to tariffs, they are refraining from passing these costs onto consumers due to weak demand and competitive pressures.
In August, the Personal Consumption Expenditures (PCE) Price Index—a measure closely monitored by the Federal Reserve—rose by only 0.3%, aligning with historical monthly gains. Additionally, real consumer spending has demonstrated consistent growth, further indicating that tariff-related pressures have not significantly hampered overall consumer activity.
4. Mixed Signals from the Auto Industry
Despite some warnings regarding potential trouble in the auto industry—spurred by tariffs and declining consumer demand—recent data tells a more nuanced story. Although some automakers report tightening profit margins, new auto purchases have shown resilience over the past two months as consumers rushed to buy vehicles before potential price increases take effect due to tariffs.
Moreover, August’s durable goods report highlighted a 1.9% increase in new orders for motor vehicles, suggesting that demand remains robust despite headwinds. While the auto sector encounters challenges, its significance as an economic driver should not be overstated compared to broader consumer spending, which is predominantly service-oriented.
5. Consumer Sentiment and Political Polarization
As of the end of September, consumer sentiment has indicated a decline, according to the University of Michigan’s surveys. The headline index fell to 55.1 from 58.2 in August, marking one of the lower readings of the year. Interestingly, sentiment trends have varied notably along political lines, revealing a stark contrast in perceptions of the economy among Democrats and Republicans. This division underscores how political beliefs can shape economic outlooks, creating an environment where some consumers may feel less confident despite prevailing economic stability.
However, even amid declining sentiment, other indicators reveal that consumers continue to spend, particularly in the services sector. This dichotomy serves as a reminder that personal and political views can cloud one’s assessment of the actual economic situation.
Conclusion
As Q3 draws to a close, the overarching narrative of the US economy presents a blend of resilience and uncertainty. Key indicators, such as GDP growth and strong consumer spending, provide a foundation for optimism. However, the role of investment in sectors like AI, mixed signals from industries like automotive, and evolving consumer sentiment underscore the complexities of economic dynamics.
Investors and policymakers must navigate these mixed signals with a balanced approach, recognizing that while sentiment may waver, the underlying fundamentals often dictate long-term growth. Understanding these trends will be vital as the economy heads into Q4 and beyond, aiming for sustained growth amid evolving challenges.
