The economy is growing, but your paycheck buys less
Investment in AI and continued spending lift the headline number, while 3.7% inflation eats into wages.
Up First from NPR · Midterm Spending Blitz, GDP & Inflations Reports, Israel Election Deadlock & Iran WarThe economy looks like it is speeding up, even though many households feel squeezed. The broadest scorecard, gross domestic product from the Commerce Department, grew at a solid 2.2% annual pace in the spring, and economists expected the summer months of July, August, and September to come in faster.
Two engines explain the lift. One is construction tied to artificial intelligence, with tech companies such as Meta building massive data centers and hiring construction workers and suppliers to do it. The other is everyday shopping, because household purchases account for the largest share of output and shoppers have kept spending.
That strength is brittle. Mark Zandi, the chief economist at Moody's Analytics, calls the expansion very, very fragile and says it does not feel as if the economy is firing on all cylinders. He blames inflation, which he ties to policies of the Trump administration, including tariffs and higher energy costs linked to the U.S. conflict with Iran.
The price numbers help explain the gloom. The Labor Department reported that prices paid by consumers were up 3.7% in September compared with a year before, the most widely followed inflation reading. A separate September reading from the Commerce Department, the one the Federal Reserve watches most closely, was due next.
The deeper problem is that prices are rising faster than pay. Siri Stephen, who manages a shop selling used goods in Decorah, Iowa, says gas, food, and utility bills keep climbing while wages do not, leaving her family unable to set aside money for emergencies.
That tradeoff explains why the Fed is moving carefully. It raised interest rates in September to tap the brakes on inflation, then held steady because higher rates tend to push up mortgage rates and credit card rates that are already high. The goal is a gentle slowdown, not a sharp stop, but for families whose paychecks buy less than a year ago, even solid growth can feel like falling behind.
Questions people ask
Why does building data centers make GDP grow?
Gross domestic product adds up everything produced in the country, including what households buy, what businesses invest, government spending, and net exports. When companies build data centers, the construction, equipment, and labor count as investment, so a building boom can lift GDP even before the data center does any computing.
How high does the Fed want inflation to be?
The Fed aims for about 2% inflation over time, using the Commerce Department price index. At 3.7% on the Labor Department's consumer price measure, inflation is running well above that comfort zone, which is why central bankers are cautious about declaring victory.
How do tariffs push up prices?
A tariff is a tax on imported goods, and importers often pass much of that cost to shoppers through higher prices. Tariffs can also raise costs for American manufacturers that use imported parts and invite retaliation, which spreads the pressure.
Why does a Fed rate increase raise mortgage and credit card rates?
The Fed sets a short term benchmark that influences borrowing costs across the economy. When it rises, banks tend to charge more for mortgages, auto loans, and credit cards, which cools spending and, over time, can cool inflation.