U.S. Economy Shows Strength as Growth, Corporate Profits, and Consumer Spending Hold Up

Matthew Rubin Chief Investment Officer

 

1. Second-quarter GDP growth and jobless claims data reinforced the view that the U.S. economy remains resilient heading into the fourth quarter.
2. Third-quarter earnings closed on a strong note, led by technology and semiconductors, with broad growth across most sectors.
3. Inflation hovered around recent levels in August, while income and spending grew more than expected, keeping the Fed on track for further rate cuts.

 

1. Stronger-Than-Expected Growth Highlights Resilient Economy

The final estimate for second-quarter U.S. GDP growth came in stronger than expected last week. Output expanded at a 3.8% annualized pace, exceeding forecasts of 3.3%.¹ The upside surprise was driven by a 2.5% increase in consumer spending, which exceeded the anticipated 1.7% increase.¹ Another key factor was a decline in imports, which had surged in the first quarter as companies built inventories ahead of possible tariff increases.

Looking ahead, early estimates suggest momentum could carry into the fourth quarter. The Atlanta Fed’s GDPNow model currently points to 3.3% annualized growth, with consumption expected to remain a key driver at 2.7%.¹

The labor market also showed resilience. Weekly jobless claims declined to 218,000, well below the forecasted 233,000.¹ This reading followed a spike to 263,000 two weeks ago, which now appears to have just been noise rather than the start of a sustained increase.¹

Both the growth and labor market data will remain in focus for the Federal Reserve as policymakers prepare for the upcoming October 30th meeting.

2. Corporate Earnings Remained Strong in the Third Quarter

With one week left in the third quarter, earnings results point toward another quarter of solid gains. Analysts estimate that S&P 500 Index earnings for the quarter will increase by 7.7% compared with the same period last year.² Growth has been broad, and eight of the 11 sectors are expected to post year-over-year improvements. Technology remains the clear leader, with forecasts indicating gains above 20%.² Within the sector, semiconductor companies stand out, with earnings projected to rise nearly 45%.²

The data suggests that corporations continue to navigate the pressures of higher tariffs without significant disruption. So far, there is little evidence that the added costs have been meaningfully passed on to consumers.¹ While the broader economy slowed during the second half of 2025, the earnings outlook has held firm.

Looking ahead, modest headwinds could persist if growth remains subdued, but it is important to note that the potential for renewed momentum in 2026 offers a more optimistic longer-term view.

3. Inflation Holds Steady as Spending and Income Climb

Core inflation remained stable in August, keeping the Federal Reserve on course for additional rate cuts later this year. The Personal Consumption Expenditures Price Index (PCE) rose 0.3% during the month, pushing annual inflation to 2.7%.³ Excluding food and energy, core PCE climbed 0.2% and held at 2.9% year-over-year.³ Both headline and core readings aligned with forecasts, with headline inflation ticking slightly higher than July’s 2.6% pace.³

The data also showed steady household activity. Personal income grew 0.4%, while consumer spending rose 0.6%.³ Both measures exceeded expectations by a tenth of a percentage point, underscoring steady momentum in demand. Despite recent tariffs, companies appear to have absorbed costs or drawn from inventories, limiting price increases for consumers.

The Fed has signaled two more potential quarter-point reductions by year-end. Last week, policymakers lowered the benchmark rate to a range of 4.0%–4.25%, marking the first cut of the year.³ Markets view an October move as likely, though a December cut remains less certain.

For the period ending 9/26/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Bloomberg
² FactSet
³ Bureau of Economic Analysis

Disclosures

Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 200^® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average^® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2025061_28