Christmas came two days early for America this year when we learned that the economy grew at a 4.3 percent annualized pace from July through September, blowing past even the rosiest expectations. The tariff-induced crash predicted by countless “experts” has been replaced by rock-solid expansion.
According to the Bureau of Economic Analysis, consumers were the ones driving the acceleration in economic activity with private consumption growing at a 3.5 percent annualized rate. Not only is that faster than the previous three-month period, but it also exceeded growth in government purchases.
This is a marked change from the Biden era when a disproportionate amount of economic “growth” was coming from the public sector. As the government borrowed trillions of dollars to push spending into the stratosphere, it increased gross domestic product (GDP) without growing the real economy—the productive private sector.
This is now the first time in three years that consumer spending grew faster than government purchases for three consecutive quarters. And purchases by the federal government in particular shrank during the first nine months of 2025 at an annualized rate of 2.7 percent. It’s a complete reversal from the Biden administration when this category of government spending grew at 2.1 percent per annum.
And there’s more good news on the international trade front. The American economy is importing less and exporting more as domestic production increases. That’s a testament to the Trump administration’s fine-tuning of its tariff strategy, adapting to the economic realities facing the nation. Combine that with tax-and-regulatory reform along with record energy production and things are off to the races.
Although the GDP report showed investment was off slightly last quarter, that was largely due to businesses drawing down overstocked inventories. With the business tax reforms in the One Big Beautiful Bill Act kicking in, investment is poised to surge next year.
This is exactly what happened in the first Trump administration when business tax reform was passed. Conversely, when the Biden administration allowed some of those reforms to expire, investment slowed considerably. As Dr. Art Laffer has so often said, “Taxes have consequences,” and those results are significant because investment is the long-run driver of economic growth.
Whether it’s new factories or artificial intelligence, more investment also means more productivity and more jobs. The economic data imply that productivity growth is already picking up, a fact that should be confirmed with future figures published by the Bureau of Labor Statistics.
The jump in productivity will ultimately lead to higher earnings, coming on the heels of earnings growth already outpacing inflation this year. That’s more good news for American families who have been battling a cost-of-living crisis for years.
Still more good economic news was just released by the Federal Reserve Bank of Atlanta, which is forecasting robust growth of 3.0 percent for the fourth quarter. Even with the economy contracting in the first three months of 2025, America is still on track for solid growth of roughly 2.7 percent this year.
Perhaps more importantly, recent economic activity, along with tax-and-regulatory reforms, points to even faster growth in 2026, which is shaping up to be a red-letter year for the economy and the American people.
Larry Kudlow, former director of the National Economic Council, believes 5 percent growth is within reach. America hasn’t seen growth like that for more than 40 years.
Less taxation and regulation, along with low energy prices, are supercharging growth. Once a new Chairman of the Federal Reserve is appointed in May, monetary policy reform will be added to the list, and then all the dials should be lining up. In short, the economy could be a rocket sled on rails.
Economic growth is vitally important because it’s how we produce not only more products and services but also better ones and create a higher standard of living for Americans. Faster growth in the overall economy and in worker productivity means higher wages and a better quality of life for all income groups.
There’s certainly still a tremendous mess to clean up that was left behind by the Biden administration, but this accelerating economic growth was a great Christmas present to America, and the New Year is looking even better.
E.J. Antoni, Ph.D., is chief economist and the Richard Aster fellow at the Heritage Foundation and a senior fellow at Unleash Prosperity.
Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.
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