The Economy Grew 3.4 Percent, but Inflation Is Outrunning Paychecks

The U.S. economy grew at a 3.4 percent annual rate in the third quarter, up from 2.2 percent in the spring, the Bureau of Economic Analysis said October 29 in its first estimate. Investment, consumer spending and government spending all rose, partly offset by lower exports.

The same day, the bureau said its personal consumption expenditures price index, the inflation measure the Federal Reserve targets, was 3.6 percent higher in September than a year earlier, and 3.1 percent excluding food and energy, after rising 0.5 percent in the month alone. Personal income rose 0.2 percent in September, but disposable income adjusted for inflation fell 0.3 percent, and the saving rate was 3.8 percent.

What it means for you: strong growth with inflation running well above the Fed's 2 percent goal is the backdrop for this week's Fed decision, where two officials wanted to raise rates. It makes near-term rate cuts unlikely, which keeps card and loan rates high, while savers can still find yields well above zero. If your raise this year was smaller than about 3.5 percent, your pay has likely lost ground to prices. These are first estimates and will be revised.