Auto Sales Revive Economy; GNP Growth Rate Up to 2.9% : Defense Spending, Trade Performance Also Get Credit

The nation’s economy, propelled by booming car sales and a hefty defense-spending increase, expanded at a moderate 2.9% annual rate this summer after the spring’s near-standstill performance, the government said today.

The Commerce Department said the rise in the gross national product was also the result of a slightly improved trade performance.

The 2.9% growth marked an upward revision from the original estimate one month ago that the economy had expanded at a 2.4% rate in the July-September period.

The faster growth was accompanied by higher inflation. An inflation index tied to the GNP rose at an annual rate of 2.4% in the third quarter, up substantially from a 1.7% annual rate in the April-June quarter. The government blamed the rise on higher food prices.

‘Quickened Pace’

At the White House, spokesman Larry Speakes commented, “The U.S. economy is quickening its pace and the Reagan economic expansion--now in its fourth full year of continued growth--offers ever greater opportunities for American workers.”

Even with the upward revision in growth, the economy was still expanding at a rate far below Reagan Administration expectations.

The Administration had been hoping for growth in the last six months of the year to exceed an annual rate of 4%.

Most analysts are predicting that growth in the final three months of the year will average 3% to 3.5%, reflecting increased spending by consumers and businesses rushing to take advantage of expiring tax benefits.

Recession Fears

The pace of current activity is far above the barely perceptible growth rate of 0.6% turned in during the spring. That weak performance had led to fears that the current economic recovery, now four years old, was in danger of tumbling into a recession.

The July-September strength came primarily from a big upturn in sales, growing by 5.2%, compared to a rise of 3.4% in the second quarter.

Half of this $46.8-billion increase came from the sale of new cars, which surged during the period as consumers rushed to take advantage of cut-rate financing incentives offered to reduce the backlog of unsold 1986 models.

Much of the revision from the earlier estimate of third quarter growth came from a sharply higher estimate of defense spending.

The Commerce Department boosted its estimate of military spending by $9 billion over what it had first estimated. 1.

The country’s trade deficit grew during the third quarter, putting the imbalance between imports and exports at an annual deficit level of $163.6 billion. But the deterioration was much less than in the second quarter, so the deficit subtracted less from GNP growth.

In other economic news today, the government said:

--Housing construction in October edged down 0.2%, the fifth decline in the last six months. The drop put construction of new homes and apartments at an annual rate of 1.65 million units last month, the slowest pace since February, 1985.

--After-tax corporate profits rose 4.3% in the third quarter, the biggest increase since a 4.5% advance in the last three months of 1985.