U.S. real GDP rose +1.4% SAAR (vs +3.0% expected) in Q4 2025, well below ~3% forecasts amid shutdown distortion.

• Consumer spending increased +2.4% SAAR (slower than prior two quarters), with goods -0.1% SAAR driven by nondurables -0.9% and services +3.4% SAAR; health care (+$40.6B) was the largest contributor within consumption.

• Gross private domestic investment rose +3.8% SAAR (strongest since Q1), but residential investment fell -1.5% SAAR for a fourth straight decline while nonresidential investment +3.7% SAAR was led by information processing equipment (+0.65 ppts) and R&D (+0.25 ppts).

• Net exports added only +0.08 ppts to GDP as exports -0.9% SAAR and imports -1.3% SAAR both declined, with the smaller drop in exports offset by weaker imports.

• Government spending and investment contracted -5.1% SAAR, including federal activity -16.6% SAAR, the second largest contraction in nearly 15 years; workforce reductions alone subtracted about -1.0 ppts from GDP growth.

• Final sales to private domestic purchasers grew +2.4% SAAR (vs +2.9% in Q2 and Q3), indicating more stable underlying private demand than the headline GDP figure.

• Growth contributions remained concentrated in health care spending and AI-related investment, while real estate and nonresidential structures remained weak.

U.S. real GDP growth in Q3 2025 was revised up to +4.4% SAAR (from +4.3% SAAR initial), reflecting slightly stronger top-line momentum than first reported.

• The +4.4% SAAR increase in Q3 (vs +3.8% in Q2) was driven by gains in consumer spending, exports, government spending, and investment, while imports fell (imports subtract from GDP).

• The +0.1 ppt upward revision to GDP primarily reflected upward revisions to exports and investment, partly offset by a downward revision to consumer spending; imports were revised up.

• Real final sales to private domestic purchasers rose +2.9% SAAR, revised down -0.1 ppt from the prior estimate, indicating slightly softer underlying private domestic demand than initially reported.

• From an industry view, real GDP gains reflected a +5.3% increase in real value added for private services-producing industries and a +3.6% increase for private goods-producing industries, partly offset by a -0.3% decline in government value added.

• Real gross output increased +3.2% SAAR, with private services up +4.4% and government up +2.1%, while private goods-producing industries declined -0.1%.

• Inflation measures were unchanged from the initial estimate: gross domestic purchases price index +3.4%, PCE price index +2.8%, and core PCE price index +2.9%.

• Real GDI increased +2.4% SAAR (unchanged), while the average of real GDP and real GDI was +3.4% (unchanged), keeping the combined output-income signal steady.

• Corporate profits from current production rose +$175.6B, revised up +$9.5B, indicating somewhat stronger profit growth than first estimated.

Third-quarter economic growth smashed expectations and blew by the Atlanta Fed’s forecast this morning. Real GDP expanded at a seasonally adjusted annual rate (SAAR) of 4.3% in Q3 2025, the strongest growth since Q3 2023 and above expectations of a print around 3.3% (analysts’ consensus) to 3.5% (Atlanta Fed nowcast). Growth was led by consumer spending, while investment was a very minor drag, and the contribution from trade was positive. Let’s dive into the details.

GDP Segments

The consumer was the star in Q3 2025 as personal consumption expenditures increased at a SAAR of 3.5%, the strongest so far this year and only slightly trailing behind PCE growth in the last three quarters of 2024. Spending was strong across both goods and services, which saw growth rates of 3.1% and 3.7%, respectively. Notably, the pace of services spending was the strongest since Q3 2022. The contribution of consumer spending to overall GDP growth was 2.39 ppts, the largest contributor of the main GDP segments. The Q3 result speaks to the resiliency of the consumer who has faced many headwinds this year.

While consumer spending was robust, the private domestic investment data left a lot to be desired. The segment was basically unchanged in Q3, declining at a SAAR of -0.3%, which is the second straight quarterly contraction. The real estate sector was a drag on growth for the third straight quarter as residential investment fell -5.1%, offsetting nonresidential investment growth of 2.8%. Within non-residential investment, equipment (+5.4%) and intellectual property (+5.4%) saw solid growth, dampened by a weakening in investment in structures (-6.3%) for the seventh straight quarter. Technology investment led once again in Q3, with information processing (+$12.5 billion) and R&D (+$14.0 billion) leading in the raw investment numbers.

The interplay of inventory and trade were sources of volatility in Q1 and Q2 growth data, but the dynamics in Q3 were not as drastic. Net trade contributed 1.59 ppts to GDP growth as exports expanded at a SAAR of 8.8% and imports fell at a SAAR of -4.7%. This was slightly offset by a -$11.4 billion drop in private inventories, which contributed -0.22 ppts to growth. Excluding the positive contribution by trade, we see final sales to domestic purchasers growth at 2.9%, slower than the headline real GDP growth but still the strongest so far this year.

Price Indexes

GDP data also comes with some price indexes, though these updates will be basically obsolete in the context of the current inflation outlook. The gross domestic purchases price index increased at a 3.4% annualized rate and was up 2.7% YoY in Q3 2025, accelerating from 2.3% YoY in Q2 to the highest level since Q3 2023. The Fed’s preferred inflation gauge, the core PCE price index, grew at a slower annualized pace of 2.9% and saw an acceleration from 2.7% YoY in Q2 to 2.9% YoY in Q3. These data points suggest that pricing pressures saw a significant increase in Q3 2025, which may or may not be traced back to tariffs. Indeed, the strong consumer spending impulse in the quarter could have been the source of upward pressure from the demand side.

Corporate Profits

Since this first GDP report was not the advance estimate and more consistent with the traditional first revision, it included corporate profit data for Q3 2025. The data showed a strong $166.1 billion increase in overall corporate profits, well above the $6.8 billion gain in Q2 and the -$47.8 billion contraction in Q1. Domestic profits (after inventory adjustments) increased by $154.3 billion, with financial profits up $54.0 billion and nonfinancial profits up $100.4 billion. Overall, it is clear that corporations enjoyed a solid quarter of profits. After tax, inventory-adjusted profits increased 7.0% QoQ and were up 4.2% YoY.

GDP

The final estimate of Q2 2025 GDP growth saw a strong upward revision this morning to a SAAR of 3.8%. This is up significantly from the second estimate of 3.3% and the advance estimate of 3.0%, and the revision confirms that Q2 2025 GDP growth was the strongest in a quarter since Q3 2023. The positive adjustment was most heavily driven by the consumer spending segment of growth, but most of the other components also saw upward revisions.

• Personal consumption increased at a SAAR of 2.5% in Q2 2025, according to the final estimate, revised up significantly from the 2nd estimate of 1.6%. That revision was entirely driven by spending on services, which actually increased 2.6% in Q2, much higher than the 2nd estimate of 1.2%. Offsetting the strong upward revision in services spending was a slight downward revision to goods spending from 2.4% in the 2nd estimate to 2.2%. Overall, the consumer spending component contributed 1.68 ppts to headline GDP growth (vs 1.07 ppts in the 2nd estimate), accounting for the entire 0.5 ppts upward revision.
• The estimated growth in gross private domestic investment in Q2 was unchanged at -13.8% in the final estimate. This reflects a slight upward revision in fixed investment growth, offsetting a downward revision in the private inventories component. Within fixed investment, nonresidential investment grew 7.3% (vs 5.7% in 2nd estimate), and residential investment declined -5.1% (vs -4.7% in 2nd estimate).
• The net exports component’s positive contributions were revised down slightly from 4.95 ppts in the 2nd estimate to 4.83 ppts in the final estimate. Exports saw a slightly larger decline of -1.8% (vs -1.3% in 2nd estimate), and the decline in imports was adjusted up slightly to -29.3% (vs -29.8% in 2nd estimate).
• Much like the investment component, the growth in government consumption and investment in Q2 did not see much of a revision at -0.1%, up slightly from -0.2% in the 2nd estimate. Within the segment, the divergence between federal and state & local consumption and investment intensified with the former at -5.3% (vs -4.7% in the 2nd estimate) and the latter at 3.1% (vs 2.6% in the 2nd estimate).

The final GDP revisions challenge the narrative of a slowing U.S. economy. Final sales to domestic purchasers, a measure that strips out the volatile swings in net exports and inventories, came in at 2.4%, more than double the initial estimate of 1.1% and well above the second estimate of 1.6%. These points more clearly to a rebound from Q1’s weakness, underpinned by stronger consumer spending, and stand in contrast to softer labor market data from Q2. Notably, the solid Q2 performance came even as federal government spending made a second consecutive negative contribution of more than -0.3 ppts to growth.

PCE Inflation

The other significant revision to acknowledge in the final Q2 2025 GDP report was upward revisions to both headline and core PCE inflation. Both were adjusted up by 0.1 ppt to 2.1% and 2.6%, respectively, and added to stronger price growth, which saw the gross domestic purchases price index by revised up to 2.0% (from 1.8% in the 2nd estimate). However, this didn’t have an impact on longer-term inflation because Q1 2025 price data was revised down. As a result, the YoY rates for PCE and core PCE inflation were unchanged at 2.4% YoY and 2.7% YoY, respectively. Similarly, the gross domestic purchasers annual rate was unchanged at 2.3% YoY. The changes in the price data likely just reflect the newly discovered strength in consumer spending in Q2, and another slight downward revision to Q2 data.

Industry GDP

The final GDP report also provides us with a view of how GDP trended by industry. In Q2, the goods sector was the primary driver of growth, with real value added up at a SAAR of 10.2%. This was supplanted by a solid quarter for the services sector, up 3.5%, and dampened by a weak government sector, down -3.2%. The strongest industries in Q2 were finance & insurance (+0.70 ppts) and information (+0.66 ppts), suggesting that AI factors and a strong equity market were key drivers of growth in the quarter. While these segments were strong, the full manufacturing industry (combining durable and nondurables) added 1.11 ppts of growth and stands out as the top performer. This was likely fueled by tariffs which have caused domestic producers to see an increase in demand from local customers who want to avoid import duties and foreign customers trying to front-run the higher tariff rates.

US real GDP grew at an annualized rate of +3.3% in Q2 2025, revised up from +3.0% in the advance estimate, following a -0.5% contraction in Q1.

• The upward revision reflected stronger investment and consumer spending, partly offset by weaker government spending and higher imports.

• Personal consumption growth was 1.6% at a SAAR in the second estimate, revised up from 1.4%.

• The decline in private investment was revised up from -15.6% in the 1st estimate to -13.8%.

• Federal government consumption growth was the weakest since 2022 Q1 at -8.5% as nondefense spending growth was the weakest since Q2 2021 at -14.3%.

• Real final sales to private domestic purchasers rose +1.9% (revised up +0.7 ppts), showing firmer underlying private demand.

• The gross domestic purchases price index increased +1.8% (revised down -0.1 ppt), while the PCE price index rose +2.0% (also revised down -0.1 ppts) and core PCE held steady at +2.5%.

• Real gross domestic income (GDI) jumped +4.8% after just +0.2% in Q1, bringing the average of GDP and GDI to +4.0%.

• Corporate profits rebounded +$65.5 billion in Q2, reversing part of the -$90.6 billion decline in Q1. The increase in profits was driven by a $59.1 billion increase in the nonfinancial sector.