Highlights

• Real GDP growth in Q3 was revised higher to a 4.4% annual rate, beating the consensus expectation of 4.3%.
• Upward revisions to inventories, business investment, and net exports more than offset small downward revisions to homebuilding and personal consumption.
• The largest positive contributions to the real GDP growth rate in Q3 were consumer spending and net exports. The weakest component was homebuilding.
• The GDP price index was unrevised at a 3.8% annual rate. Nominal GDP growth—real GDP plus inflation—was revised upward to an 8.3% annualized rate from a prior estimate of 8.2%.

Sources: U.S. Bureau of Economic Analysis, Haver Analytics, First Trust

Implications

The economy was on firm footing in the third quarter, with real GDP up at a 4.4% annual rate, an upward revision from the prior estimate of 4.3%. Upward revisions to inventories, business investment (primarily structures), and net exports were enough to fully offset downward revisions to homebuilding and consumer spending on services.

The 4.4% annual growth rate in Q3 is the fastest quarterly pace in two years, but the details are not quite as strong as the headline suggests.

For a better gauge of sustainable growth, we look at “core” GDP—consumer spending, business fixed investment, and homebuilding—while excluding the more volatile categories like government, inventories, and trade. Core GDP grew at a 2.9% annual rate in Q3, slightly below the prior estimate of 3.0%, and up 2.6% from a year ago.

Those figures are both very close to the 2.8% growth rate in core GDP since the pre-COVID peak at the end of 2019. Even if you take the headline 4.4% growth rate of overall real GDP at face value, real GDP is up 2.3% from a year ago, which is slightly below the growth rate of 2.4% since the pre-COVID peak.

More notable were corporate profits: The second look at Q3 profits showed solid growth of 4.5% from Q2 (versus a previous estimate of 4.2%), with a 9.3% gain versus a year ago. Adjusting for losses at the Federal Reserve, corporate profits were up 4.1% in Q3 and are up 7.5% from a year ago.

Real gross domestic income, an alternative to real GDP that is just as accurate over time, rose at a 2.4% rate in Q3 and is up 2.4% from a year ago. Good, but not as fast as the growth in real GDP.

In the meantime, the Federal Reserve needs to be careful about reducing short-term rates.

GDP prices rose at a 3.8% annual rate in Q3 and are up 3.0% from a year ago. Nominal GDP—real GDP growth plus inflation—was up at an 8.3% annual rate in Q3 and up 5.4% from a year ago. In recent labor news, initial jobless claims rose 1,000 in the week ending January 17 to 200,000, while continuing claims declined 26,000 to 1.875 million.

Taken altogether, these figures suggest the Fed will pause rate cuts at its next meeting as it waits for more evidence of a deteriorating labor market or that inflation is heading back down toward its 2.0% target.

Sources: Bureau of Economic Analysis, First Trust

Editor’s note: Brian Wesbury is chief economist at First Trust Advisors LP. He and his team prepare a weekly market commentary titled “Monday Morning Outlook,” as well as frequent research reports and the recurring feature “Three on Thursday.” Proactive Advisor Magazine thanks First Trust for permission to republish an edited version of these commentaries, which were first published on Jan. 22, 2026.

This report was prepared by First Trust Advisors LP and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

The opinions expressed in this article are those of the author and the sources cited and do not necessarily represent the views of Proactive Advisor Magazine. This material is presented for educational purposes only.