US GDP grows but real wages fall

The United States economy expanded at an annualized rate of 3.4% in the third quarter of 2026, according to data released by the Bureau of Economic Analysis on Thursday. This marks an acceleration from the 2.2% growth rate recorded in the previous quarter.

The primary engine behind this expansion was consumer spending, which rose at an annualized pace of 3.8% between July and September. Business investment, excluding residential construction, jumped 12.7% during the same period. Officials and analysts point to a surge in artificial intelligence infrastructure as a key driver of these corporate capital expenditures.

Specific sectors saw sharp increases in spending on technology. Expenditures for information processing equipment grew by 37.4%, while spending on software programs increased by 9.6%. Research and development budgets also advanced by 7.5%.

Despite the headline growth, the gains did not reach the pockets of average workers. The Bureau of Labor Statistics reported that the average hourly wage in the private nonfarm sector rose by 3% in nominal terms between September 2025 and September 2026. However, the Consumer Price Index for All Urban Consumers increased by 3.7% over that same twelve-month span.

Because inflation outpaced wage growth, real hourly earnings declined by 0.7% annually. This equates to a loss of approximately 70 cents in purchasing power for every $100 earned by an hourly worker. In September alone, real hourly pay fell by 0.5% compared to August, as nominal wages rose just 0.1% while consumer prices climbed 0.6%.

The residential construction sector continued to struggle amid high borrowing costs. Residential investment dropped by 3.3% in the third quarter, marking the sixth decline in the last seven quarters. Mortgage rates remain a heavy burden on homebuyers and developers, limiting the contribution of housing to overall economic growth.

Government data indicates that the pace of inflation has slowed. The Personal Consumption Expenditures price index advanced at an annualized rate of 2.1% in the third quarter, down from 5% in the second quarter. The core index, which excludes volatile food and energy prices, rose by 2.5%, a decrease from the previous 3.3% rate.

Consumers continued to spend on both services and goods. Health care, restaurants, and lodging led the increase in service spending. Among goods, prescription medications and other nondurable items saw notable growth. These categories represent essential costs that absorb a large portion of household budgets.

The Bureau of Economic Analysis plans to release a second estimate of the third quarter GDP on November 25, 2026. The 3.4% figure announced this week is the initial estimate. The data suggests that while the total output of the economy is expanding, the average worker is not experiencing a corresponding increase in their ability to purchase basic goods and services.