GDP Revised Up to 4 Percent in 3Q

The U.S. economy grew at a slightly stronger rate than thought in the third quarter because imports were not as hefty as first estimated, the Commerce Department (search) said on Wednesday, though corporate profits weakened.

Gross domestic product (search), the measure of total goods and services production within U.S. borders, expanded at a 4 percent annual rate in the July-September quarter instead of 3.9 percent as previously reported, a relatively robust pace that implied steady and sustained growth. It beat Wall Street economists' forecasts that third-quarter GDP growth would be unrevised at 3.9 percent and was a step up from the second quarter's 3.3 percent rate of GDP growth.

Inflation remained muted despite signs that prices were starting to pick up. A favored gauge cited by Federal Reserve Chairman Alan Greenspan (search) — personal consumption expenditures minus food and energy costs — gained at a 0.9 percent annual rate instead of 0.7 percent estimated a month ago.

That made it the smallest increase in prices since a matching 0.9 percent rise a year earlier rather than the smallest since the end of 1962 as had been the case. The Federal Reserve (search) has raised U.S. interest rates five times this year, though its policy-setting Federal Open Market Committee (search) played down inflation concerns when it last raised rates on Dec. 14.

Consumer spending (search), which fuels two-thirds of U.S. economic activity, powered ahead at 5.1 percent annual rate in the third quarter, the same as estimated a month ago and more than three times the 1.6 percent increase in the second quarter. Business investment gained at a solid 13 percent annual rate instead of 12.9 percent estimated last month after a 12.5 percent second-quarter rate of growth.

The third-quarter GDP report was a final estimate for economic performance in the period and included some data that the department did not have a month ago.

Corporate profits took a tumble in the period, partly because of a series of hurricanes that wracked Southeastern states in the period. Overall profits after taxes fell 4.2 percent during the third quarter to $864.7 billion, with the storms taking about $80 billion out of profits. The drop was the biggest percentage decline since a 4.5 percent drop in the first quarter of 2003, after a 0.7 percent fall in the second quarter.