⬆️ GDP: +4.3%(!) in Q3, 2025
Strong Q3 (Jul - Sep) with consumer spending overwhelming weak private investment
Now that data is flowing again, it’s time to get back into it! GDP growth came in pretty strong this week at +4.3% for Q3, 2025. This is a significant acceleration from Q2 and the best quarter since Q3 2023. My Q3 forecasts had growth ranging from +3.2% to +4.2%, so I feel pretty good about those predictions.
While the expectation was for a good quarter, most of the heavy lifting came from private consumption and government spending in Q3:
Personal consumption, which is about 70% of total GDP, grew at +3.5% on an annual basis — much better than the previous quarter. Consumers came back strong throughout the summer and spent more on goods and services.
Business investment, which is about 15% of total GDP, was the weakest sector and and actually shrunk -0.3%. Most of the weakness came from sharpy contracting residential investment (about 3% of GDP) with a 5.2% decline. Residential investment has now shrunk 5 out of the last 6 quarters and is clearly struggling.
Government spending bounced back in Q3 — Federal government contribution grew by +2.9% while state and local grew by +1.8%.
Depending on how you look at trade, imports declined by a further 4.7%, but exports bounced back by +8.8%. Net trade or the “trade deficit” (exports minus imports) stayed about the same at -$1.0 Tr.
Other measures of the economy, like GDP excluding government, all showed solid growth.
Imports, Exports, and Weird Accounting
The odd nature of imports and exports in gross domestic product accounting makes this data confusing to report. Are decreases in a negative number good? Do you use (+) or (-) to show a decrease in negative number?
The classic Econ 101 GDP formula:
Where C = consumption, I = investment, G = government, X = exports, and M = imports. Notice that imports subtract from GDP in normal GDP accounting, which is weird. The general idea here is that GDP measures domestic production. Removing imports from this formula is basically a definitional accounting identity.
Imagine going to a shipyard that unloads imported goods all day and telling a dockworker that “everything you touch is subtracting from our economy!”. This is why I include an alternative measure (GDP + imports) in my chart above.