Economy Grows at 3.7% Annual Rate

The nation’s economy picked up speed in the third quarter as consumers spent more freely, but the growth rate reported by the government today fell short of projections.

The Gross Domestic Product, the sum of all goods and services produced in the United States, rose 3.7% during the July-September quarter, according to preliminary estimates by the Commerce Department. The third quarter rate was an improvement over the 3.3% growth rate posted in the previous quarter but below the 4.3% rate that many analysts had expected.

Economic activity is projected to slow down further during the current quarter as high energy prices take their toll, economists said.

“Unless uncertainties diminish along with lower price of oil and accelerated job growth, consumers won’t be the primary source of economic strength in the future,” said Wells Fargo economist Sung Won Sohn in a statement.

On the presidential campaign trail, officials for Sen. John F. Kerry said the third quarter economic performance “was disappointing for middle class families and below expectations,” according to the Associated Press.

Meanwhile, the White House was “encouraged by the ongoing strong performance of the American economy,” said Treasury Secretary John Snow.

Much of the third quarter’s growth was driven by a rebound in consumer spending, which grew 4.6% during the third quarter, compared to 1.6% in the previous period. Other major contributors to growth were business spending on equipment and software, government expenditures and exports.

The economy was held back partly by a slowdown in the growth of business inventories and rising imports, which reduces GDP, and slowing residential real estate investment, which grew 3.1% versus 16.5% in the previous quarter.

“Residential Investment slowed sharply, much more than expected, given recent housing starts and home sales,” said economist Steven Wood in a report for Insight Economics. “A reacceleration is likely” in the current quarter.

The quarterly report indicated that price inflation had eased during the period. The price index, which measures prices paid by U.S. residents, rose 1.8% during the third quarter, down from 3.5% in the second quarter. The core index, which excludes volatile food and energy prices, increased 1.5% compared to 2.5%.

Analysts said the third quarter GDP bolstered expectations that Federal Reserve policymakers might grow more cautious about hiking interest rates after their Nov. 10 meeting, which many expect will result in a quarter-point rate increase.

The central bank’s policymakers “may take an extended break to canvass the economic landscape,” said Sohn at Wells Fargo. “Economic growth is not as strong as it should be, and the inflation rate continues to decelerate.”

Times wire services contributed to this report.