Third-Quarter GDP Revised Downward

The U.S. economy grew a bit less robustly in the third quarter than previously thought and prices picked up, the government said Wednesday in a report that showed consumers beginning to rein in their spending.

Also Wednesday, the Mortgage Bankers’ Assn. said U.S. mortgage applications dropped to an 11-month low last week as fewer people sought loans to buy new homes.

“Housing has passed its peak,” said Robert Brusca, chief economist at Fact & Opinion Economics.

The association’s seasonally adjusted index of mortgage application activity for the week ended Dec. 16 fell 4% to 594.6 from 619.3 the previous week.

Gross domestic product, or total output within U.S. borders, expanded at a 4.1% annual rate in the July-to-September quarter, the Commerce Department said in its final estimate of growth for the period.

The rate was below the 4.3% the department had estimated a month ago, partly because new-car sales were slower and investment in home-building was less than thought.

Nonetheless, the revised rate was still the best quarterly GDP showing since a 4.3% pace of growth in the first three months of 2004, underlining the generally strong state of the economy. Many analysts anticipate at least a temporary moderation in growth during the fourth quarter, and there were hints of that in the third-quarter report.

Price pressures picked up slightly from the initial estimate a month ago, the GDP report showed. The price index for consumer spending rose at a 3.7% rate in the third quarter instead of 3.6%, ahead of the second quarter’s 3.3%.

The core personal consumption expenditures price index, which strips out volatile food and energy costs and is the Federal Reserve’s favored inflation gauge, rose 1.4%, an upward revision from 1.2% but down from 1.7% in the second quarter.

Economist Elisabeth Denison of Dresdner Kleinwort Wasserstein in New York said the GDP report would draw attention to the possibility of consumers becoming reluctant to spend, especially amid the holiday shopping season.

“The big theme in the fourth quarter is going to be consumption spending. That is the real driver,” Denison said. “We started weak with the car sales in September and October declining, so that will be something to watch, and now the retail holiday season in full swing ... that will be the theme.”

Consumer spending, which fuels about two-thirds of national economic activity, advanced at a 4.1% annual rate instead of the 4.2% estimated a month ago, though that still was well ahead of the second quarter’s 3.4%.

Investment in new-home building increased at a 7.3% annual rate instead of 8.4% estimated a month ago, well below the second quarter’s 10.8% rate of growth.

The Commerce Department said the hurricanes that lashed the Gulf Coast region in August and September cut third-quarter corporate profits before taxes and adjustments by $165.3 billion, measured at an annual rate. Not only did insurers have to make huge benefits payments but there also were losses of uninsured corporate property.