The Commerce Department reported Wednesday that the increase in the gross domestic product - the total output of goods and services - in the July-September quarter followed a sluggish 1.9 percent rate of growth in the April-June quarter.
The revised third-quarter increase was stronger than the 4.8 percent rate the government previously estimated and was even higher than the 5.2 percent rate many analysts were forecasting.
It marked the biggest spurt in growth since a 5.9 percent rate of increase posted in the fourth quarter of 1998.
Last week, the Federal Reserve bumped up interest rates for a third time this year to slow down the economy and keep inflation under control. But Fed policy-makers signaled that they may be content to leave rates alone for the rest of the year.
"The econony really was booming in the third quarter and although inflation pressures started to creep, the econony is expected to slow in the fourth quarter," said Paul Kasriel, economist with The Northern Trust Co. "The real question is whether the economy will slow enough on its own to alleviate those inflation pressures. Many economists think it won't and will need help from the Fed."
A number of factors contributed to the uptick in third-quarter growth, including robust consumer spending, a strong buildup in inventories held by businesses and an improvement in the trade deficit.
In a related development, the government said the profits of U.S. companies increased at an annual rate of $8.2 billion in the third quarter. Those profits were held back by the impact of Hurricane Floyd, which raked the East Coast in September.
Still, that marked an improvement over the second quarter, in which profits decreased by $6.5 billion as companies were pinched by increasing labor costs resulting from the lowest unemployment rate in nearly three decades.
In a separate report, the Labor Department said Wednesday that the number of Americans filing for unemployment benefits last week fell unexpectedly by 13,000 to 274,000, the lowest point since mid- September. Analysts consider jobless claims below 300,000 an indication of an extremely tight labor market.
The booming U.S. economy has been powered by robust consumer spending, which accounts for two-thirds of total economic activity.
The government said Wednesday that consumer spending in the third quarter rose at an annual rate of 4.6 percent, more brisk than the government previously thought, but slightly less than the 5.1 percent growth in the second quarter.
Businesses, confident that consumers will keep spending, increased their stockpiles by $33.9 billion in the third quarter. A slowdown in inventory building and a worsening trade deficit were major factors holding bacgrowth in the second quarter.
America's trade deficit subtracted .65 percentage points from third-quarter growth, an improvement from the previous quarter when the deficit reduced growth by 1.35 percentage points. Exports jumped by a 11.7 percent rate in the third quarter, compared with a 4 percent gain in the second quarter. But imports grew faster, rising at a 14.6 percent rate, up from a 14.4 percent rate of increase in the second quarter.
Business investment spending on new equipment and plants also contributed to third-quarter growth, rising at an annual rate of 13.3 percent, compared with 7 percent in the second quarter.
But spending for new homes and apartments decreased at an annual rate of 4.8 percent, in part reflecting higher mortgage rates.
All the changes show the economy growing at an annual rate of $119.1 billion in the third quarter of the year, pushing the country's total output of goods and services to $8.9 trillion, after adjusting for inflation.
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