GDP Grows at 3.9 Percent Rate on Spending

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Robust consumer spending on cars, furniture and food helped power U.S. economic growth forward in the third quarter at a faster pace than previously thought, the government said on Tuesday, while underlying inflation was the tamest in decades.

The Commerce Department (search) said gross domestic product (search), which measures all goods and services produced within U.S. borders, grew at a 3.9 percent annual pace in the three months from July through September, up from the 3.7 percent estimated a month ago.

That beat Wall Street economists' predictions that the third-quarter advance would be unchanged at 3.7 percent and marked the sixth successive quarter GDP has expanded at a rate exceeding 3 percent, implying healthy and sustainable growth.

Consumers ratcheted up their spending at a 5.1 percent annual rate, more than three times the 1.6 percent rate posted in the second quarter and the strongest since a 7 percent surge in the fourth quarter of 2001. Consumer spending accounts for more than two-thirds of the $11-trillion U.S. economy.

A key price gauge favored by Federal Reserve Chairman Alan Greenspan (search) — the personal consumption expenditure index excluding food and energy costs — rose at a mild 0.7 percent rate in the third quarter, the smallest pickup in more than four decades since a 0.5 percent gain in the fourth quarter of 1962.

U.S. central bank policy-makers next meet Dec. 14 to mull interest-rate strategy. They have lifted short-term borrowing costs at each of their last four gatherings and many economists expect another increase from a still-low 2 percent federal funds rate to come in December.

The Commerce Department said the impact of four major hurricanes subtracted some $80 billion from U.S. corporate profits in the third quarter. After tax, profits fell 2.0 percent in the period, after slipping 0.7 percent in the second.