Flash Insights: Strong Growth, Emerging Cracks

The US economy remains resilient, but growth is becoming increasingly concentrated in AI investment while household purchasing power, financing conditions and fiscal risks deteriorate.

• On October 28, the Fed held the fed funds rate at 3.75%–4.00% by a 10–2 vote, upgraded its activity assessment from “solid” to “strong,” and retained an elevated-inflation view; Franklin Templeton keeps a December hike as its base case.
• Q3 real GDP growth accelerated to 3.4% annualized from 2.2% in Q2, with real final sales to private domestic purchasers rising 4.9% and consumer spending increasing 3.8%; however, residential investment fell 3.3%.
• Technology spending represents about 7.5% of GDP but contributed 1.4 percentage points to year-over-year GDP growth, while September core capital-goods orders rose 13.5% year over year, highlighting the economy’s dependence on AI-related investment.
• Household purchasing power weakened as September headline PCE inflation rose to 3.6%, core PCE to 3.1%, real spending stagnated, real disposable income fell 0.3%, and the saving rate declined to 3.8%, its lowest since September 2022.
• AI financing is becoming a constraint: OpenAI reportedly cut its fundraising target from US$30 billion to US$20 billion and its proposed valuation from US$1.4 trillion to US$1.25 trillion; meanwhile, the federal debt-to-GDP ratio reached 100% in September.

Takeaway: Near-term US growth remains strong and supports a possible December Fed hike, but investors should watch the breadth of demand, AI financing conditions, Treasury issuance and the risk that weaker sentiment eventually undermines capital expenditure and equity-market wealth effects.