Economy Grows 4% in Quarter

The economy headed into the end of the year with good momentum, expanding at an annual rate of 4% in the third quarter, a faster clip than previously thought.

The new reading on the gross domestic product, released Wednesday by the Commerce Department, exceeded the previous estimate of a 3.9% growth rate for the July-to-September quarter.

It marked the best showing since the opening quarter of this year and was up from a 3.3% pace in the second quarter.

“Things are shaping up,” said Carl Tannenbaum, chief economist at LaSalle Bank.

Gross domestic product measures the value of all goods and services produced within the U.S. and is the broadest barometer of the country’s economic health.

Brisk spending by consumers and businesses helped the economy expand in the third quarter. The slight upward revision to GDP in the third quarter mostly reflected the fact that the trade deficit was less of a drag on the economy than previously forecast.

“The magnitude of the adjustment was trivial, but the handle change may provide a psychological boost,” said Steve Stanley, chief economist at RBS Greenwich Capital.

Analysts are hopeful that the current October-to-December quarter will log a solid performance, with some estimates from a 3.5% growth rate to as high as a 4.5% pace.

Still, analysts are closely monitoring holiday retail sales, which thus far have failed to shine.

For all of 2004, the economy is expected to grow by more than 4%, which would mark an improvement from 2003, when GDP rose by 3%. However, economists foresee slower -- but still healthy-- economic growth for 2005.

The new, third-quarter GDP figure, based on more data, was better than economists were forecasting. They were predicting economic growth would remain at the 3.9% pace estimated a month ago.

After adjusting for inflation, the economy grew to $10.9 trillion, on an annualized basis, in the third quarter.

Consumers ratcheted up spending at a 5.1% rate in the quarter, the fastest pace since the end of 2001. Consumer spending accounts for about two-thirds of all economic activity.

The trade deficit in the third quarter ended up shaving a tiny 0.10 percentage point from the GDP, an improvement from the 0.27 percentage-point reduction previously estimated for the quarter.