GDP Grew Nearly 5% in Third Quarter

The U.S. economy grew at its fastest rate in four years lin the third quarter, according to revised figures on the Gross Domestic Product released today by the Commerce Department.

The economy expanded at a 4.9 percent annual rate in the third quarter of 2007, the department reported, an upward revision from  the 3.9 percent annual rate reported last month. The revision was in-line with economists’ expectations. The Commerce Department issues two monthly revisions of GDP growth after its initial estimate.

The spike in growth in the quarter was uneven. In the revision, consumer spending growth was lowered from 3 percent to 2.7 percent while government spending growth was revised upward from a 3.7 percent annual rate to 3.9 percent.

Corporate profits also fell by $19.3 billion in the quarter, after a $94.7 billion increase in the second quarter. The decline in profits doesn’t include recent write-downs announced by banks to account for losses in subprime mortgages and related derivatives.  

The primary driver for the upward revision was an improvement in the trade balance between the U.S. and other countries and a jump in inventory at domestic manufacturers. Some observers said this will catch up to the economy in the fourth quarter. "Stronger growth in the third quarter implies weaker growth in the fourth quarter due to a partial payback in both trade and inventories," economists for Lehman Brothers told MarketWatch.

Also today, the White House lowered its forecast for economic growth in 2008 from a previously announced 3.1 percent rate to 2.7 percent. The White House also anticipates unemployment will tick up next year to 4.9 percent from the previous projection of 4.7 percent.