Economy Moves Up at Surprising 4.3% Rate for 3rd Quarter

The economy, boosted by an automobile buying spree, grew at a surprisingly strong 4.3% annual rate from July through September, the government reported today.

The Commerce Department said the gross national product--the broadest measure of economic health--spurted upward during the summer at the fastest pace in more than a year.

The new figure represented a sharp revision from a projection last month that put growth at 3.3% for the third quarter and was up even further from the initial “flash” estimate of 2.8% growth.

The new figure caught economists by surprise. None had forecast anything close to a 4.3% annual rate, and many were actually predicting that the GNP figure would be revised downward, reflecting the country’s continuing trade problems.

The 4.3% growth rate represented good news for President Reagan, who has been maintaining for months that the economy is in the midst of a substantial rebound from the weak growth experienced in the first six months of the year.

From January through June, the GNP grew at an anemic annual rate of 1.1%, far below the 6.8% growth recorded in 1984.

New-Car Sales Surge

But much of the third-quarter strength came in a surge in new-car sales as consumers rushed to take advantage of attractive cut-rate financing deals offered in August and September. However, auto sales slipped considerably in October and early November, and many private analysts said this reflects the weak consumer demand they expect in coming months.

“No one should be fooled by the 4.3% increase. The economy is weak,” said Allen Sinai, chief economist for Shearson Lehman Brothers. “The upward revision came mostly from a combination of higher business inventories and increased government support payments to farmers. Neither of those is a sign of permanent strength in the economy.”

While the Reagan Administration is calling for growth in the final three months of 5% to 6%, some private analysts expect that growth could dip as low as 2%. The pessimism stems from a belief that the country’s huge trade deficits will continue to act as a drag on overall growth in the months ahead.

It would take growth of 5.7% in the fourth quarter to reach the Administration’s target for the year of 3% growth.

Durable Goods at 23.3%

The 4.3% GNP growth rate in the July-September quarter was the fastest pace of economic activity since a 7.1% rate recorded in the April-June quarter of 1984.

The strength came from substantial increases in sales, especially purchases by consumers. Consumer spending was rising at an annual rate of 5.4% in the third quarter with the durable goods category, which includes automobiles, increasing at an astonishing annual rate of 23.3%.

The strong gain in consumer spending left the personal savings rate, savings as a percentage of disposable income, at a 35-year low of 2.7%. It had dipped to 2.6% in the third quarter of 1950.

In a companion report, the government said after-tax profits of corporations rose 5.3% in the third quarter after a much smaller 0.3% rise in the second quarter. It was the largest gain for corporate profits since a 6.7% rise in the first quarter of 1984.