GNP Grew at Strong 4.1% Rate on Eve of Stock Market’s Crash

An unusual surge in business investment and heavy consumer spending pushed the nation’s economy to a strong annual growth rate of 4.1% during the three months before the October stock market crash, the Commerce Department reported Tuesday.

The third-quarter growth estimate for the gross national product, revised from a preliminary estimate a month ago of 3.8%, was about in line with predictions. It generally reinforced the belief of economists that the economy was expanding at a substantial and well balanced clip before the Oct. 19 market plunge.

The Commerce Department issued also a new measure of one of the economy’s most nagging problems, the trade deficit. Measured on a balance-of-payments basis in 1987 dollars, Americans imported $39.8 billion more in goods than they exported during the July-September period, the largest quarterly trade deficit ever.

However, exports were up 9% in the quarter, growing faster than imports, which were up 6%.

By a different measure, which also takes into account trade in services and income from investment abroad and is used as a basis for the GNP estimate, the U.S. trade deficit for the third quarter was $29.9 billion, equal to an annual rate of $119.8 billion.

“The upward GNP revision was actually a bit less than we had predicted,” noted David Levine, an analyst at Sanford Bernstein & Co., a New York investment banking firm. “I was a little disappointed by the overall numbers--but not by the components. The preliminary report had mostly favorable aspects: good demand, strong capital investment and soft inventory investment. This report repeats that.”

Levine said that most market predictions of higher GNP growth for the quarter assumed that manufacturing inventory investment, reported to have declined by $13.5 billion in the earlier report, would be revised upward substantially. But Tuesday’s report showed only a minor revision, to a $13.2-billion decline.

Consumer purchases of durable goods, mostly cars, added $20.4 billion to the third-quarter GNP, and even without the crash much of that number is expected to disappear in the final months of the year.