The economy grew 3.4% this summer, but consumers got there by saving less

Two pieces of economic data came out on Thursday. For one, the economy grew faster than expected: 3.4% annual rate in the third quarter. But prices grew too — by 3.6%. And those higher prices could start to take a bit of steam of that growth soon.

Still, 3.4% growth is pretty good.

“I think the big takeaway is the U.S. Economy had a pretty strong summer overall,” said Douglas Porter, chief economist at BMO Financial Group.

Of course, a lot of that growth was due to AI development. “That’s certainly a big part of the story,” Porter said. “There’s no two ways about it.”

But AI wasn’t the sole cause.

“Consumer spending was relatively robust as well,” Porter said. “Even with the energy price shock, the consumer has — as a whole — held in there and managed to grow a little bit faster than average.”

The way that consumers have managed to hang in there, though, is not quite as encouraging.

“If you look at the savings rate, it came down to 3.8% in September,” said Lydia Boussour, a senior economist at EY-Parthenon. “That’s down from about 5% a year ago.”

And actually, when September rolled around, consumers did get tired.

“If you look at real consumer spending, and you adjust for higher prices, you essentially had flat spending in September versus August,” Boussour said. “So, we saw a loss of momentum.”

Meaning that the spending bump was mostly a result of inflation, which points to a consumer who is a little weaker and a little more strained heading into the fourth quarter, which could slow down the economy’s growth a little.

“The good news is that if we do get past these energy price, gas price increases at some point, inflation will start to improve on the back of that,” said Jonathan Pingle, chief U.S. economist at UBS.

And there’s another thing propping up consumers — at least some of them.

“Elevated levels of wealth in the economy,” Pingle said. “Much of which has been due to the wealth created in the stock market by all of this AI-related investment.”

People who feel richer spend richer. But Pingle said that feeling also means that if AI stumbles, everyone will stumble.