Economic Growth Revised to 2.9% Rate in 3rd Quarter

The nation’s economy grew at an annual rate of 2.9% from July to September, a significant improvement over a nearly stagnant 0.6% growth rate last spring, the government said Wednesday.

The Commerce Department’s latest report on the third quarter’s gross national product, the broadest measure of economic health, increased growth by half of a percentage point from its initial estimate of 2.4% a month ago.

The Administration hailed the report as evidence of a mounting economic rebound. However, department analysts said that the improvement was caused almost entirely by higher federal defense spending than earlier reported rather than by any increase in consumption or investment by the private sector.

Economy Still Sluggish

For that reason, economists mostly agreed that the increase in the revised figure, although statistically significant, reflected no real changes in the fundamentals of an economy that continues to plow along sluggishly as it enters the fifth year of an expansion.

There is a consensus that for the final three months of the year the economy will grow at a rate ranging from 2.5% to 4%--respectable but well below the pace needed to achieve the 3.2% the Administration has set as its growth target for all of 1986.

White House spokesman Larry Speakes said that the revision and growth are “welcome signs of American business becoming more competitive and more productive.”

“With the trade deficit now beginning to drop off and American business poised to begin operating in an improved atmosphere of tax reform and declining budget deficits, potential for growth seems limitless,” he said in a statement.

But Kathleen Cooper, chief economist at Security Pacific National Bank in Los Angeles, said the spurt would have been more significant had there been “major changes in net exports or business inventories.”

“The only thing that moved up was defense spending, so I don’t think the revision will alter the outlook very much,” Martin Mauro of Merrill Lynch said. “The housing sector seems to be leveling and auto sales are likely to drop after the fall’s promotional financing offers, but that should raise production as the auto companies rebuild inventories.”

In a related report, the Commerce Department said that corporate profits increased by 4.3% in the July-September quarter, the best showing since the last three months of 1985, and the department reported separately that housing starts fell 0.2% in October to an annual rate of 1.65 million, the lowest level since February, 1985.

The Commerce Department report put gross national product at an annual rate of $4.24 trillion, or $3.69 trillion in uninflated 1982 dollars, for a “real” increase of $25.9 billion.

Key ingredients in the increase were a spurt of $46.8 billion in sales of goods and services--of which auto sales accounted for nearly half. But there was a strong, partly offsetting $20.8 billion decline in business inventories.

The foreign trade picture remained gloomy--but slightly less so, with exports up 9.3% after a 9.4% decline in the second quarter. But that gain was more than wiped out by a 14.7% increase in imports, after a 15.8% import increase during the previous three months.

That amounts to an addition of $9.7 billion to the nation’s trade deficit, measured in 1982 dollars: bad news, but less so than the $28-billion drop in net exports recorded last spring.