Dec. 22 (Bloomberg) -- The U.S. economy grew at a 4 percent annual rate from July through September, faster than previously estimated, according to government figures that suggest the expansion may continue at a similar pace into 2005.

The final calculation of gross domestic product for the third quarter compares with an estimate last month of 3.9 percent, the Commerce Department said in Washington. A smaller trade gap than calculated last month accounted for most of the third-quarter revision.

``This is the sixth straight quarter of above-average growth and a pretty good sign for the economy,'' Patrick Fearon, an economist at A.G. Edwards & Sons Inc. in St. Louis, said.

Consumer spending grew at the fastest pace in almost three years, business investment accelerated and inventory building slowed during the quarter. The need to increase stockpiles amid continued strong sales will buoy GDP in the current quarter, economists said.

Economists at JPMorgan Chase Securities in New York say the economy is likely to grow 4 percent this quarter. The consensus forecast from a Bloomberg News survey earlier this month calls for growth this year of 4.4 percent, the most since 1999. The economy grew 3 percent in 2003 and 3.3 percent in the second quarter of this year.

Growth may then cool for all of 2005 to about 3.5 percent, according to forecasts from economists and the Bush administration. GDP expanded on average 3.3 percent in the past two decades, a period that includes two recessions and a record 10-year expansion. The last recession ended in November 2001.

Tame Inflation

Measures of inflation tied to the report increased at a faster pace than estimated in the previous quarter. Price increases still were slower than in the previous quarter.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said this week that the U.S. economy will expand 3.5 percent to 4 percent in 2005, with inflation and inflation expectations ``well-contained.''

Corporate profits fell more than previously estimated.

The total amount of all goods and services produced by the U.S. economy, the world's largest, rose to $10.9 trillion when annualized and after adjusted for inflation. Without adjustment, GDP rose 5.5 percent annual pace to $11.8 trillion.

Economists expected a 3.9 percent gain in GDP last quarter, according to the median of 62 forecasts in a survey by Bloomberg News. The economy expanded 4.0 percent during the 12 months that ended Sept. 30.

Consumer Spending Surges

Consumer spending jumped 5.1 percent at an annual rate last quarter, the same as estimated last month three times as fast as the 1.6 percent increase from April through June.

Growth in such spending, which accounts for more than two- thirds of the economy, may slow this quarter to 3.3 percent, according to a Bloomberg News survey Dec. 1-8. The average quarterly increase in the last 30 years is 3.4 percent.

Retail sales, which account for almost half of consumer spending, unexpectedly rose 0.1 percent in November, and the October figures were revised higher, the Commerce Department reported Dec. 13.

Economists at Morgan Stanley and Credit Suisse First Boston were among those who raised their forecasts for consumer spending this quarter based on the results.

``It could still be up close to 4 percent,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. The firm calls for a 3.5 percent rate of growth in consumer spending this quarter.

Business Investment

Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at an 13 percent annual rate in the third quarter, compared with a preliminary estimate of a 12.9 percent gain. Investment rose at a 12.5 percent rate the prior quarter.

The rise was led by a 17.5 percent increase in spending on new equipment and software, the most in a year.

A 2 percent increase in shipments of non-defense capital goods excluding aircraft in October suggests business investment on new equipment may also contribute to growth this quarter.

Fixed investment will probably grow at a 9.5 percent annual pace this quarter, according to a forecast by economists at UBS Securities, who project the economy will expand 3.5 percent in the last three months of the year.

Profits

Today's report also provides the final look at third-quarter corporate profits. Earnings adjusted for the value of inventories and depreciation of capital expenditures, called profits from current production, fell at a 4.8 percent annual rate in the third quarter compared with the previous three months. The government last month estimated profits dropped at a 2.4 percent annual rate.

The four hurricanes that swept through the southeastern U.S. reduced profits, according to the government. Uninsured property losses and payments on insurance settlements shaved $93 billion at an annual rate off profits last quarter, according to a separate report from the Commerce Department in November.

The implicit price deflator, a measure of inflation tied to the report, rose at a 1.4 percent annual rate, compared with a previous estimate of 1.3 percent, after increasing at 3.2 percent in the second quarter.

The personal consumption expenditures price index, based on consumer spending, rose at a 1.3 percent pace, revised from 1.1 percent, compared with 3.1 percent in the second quarter. The index was up 0.9 percent when food and energy costs were excluded, after a 1.7 percent gain.

Inventories

The economy will grow at a 3.8 percent annual rate this quarter, according to the median estimate of economists surveyed by Bloomberg News earlier this month.

The economy is ``OK to solid,'' said Rick Wagoner, chief executive at General Motors Corp., the world's largest automaker, in a Dec. 17 interview. If oil prices and health care costs subside, ``maybe we see better growth than kind of this 3 percent to 3.5 percent range,'' he said.

Companies boosted inventories at a $34.5 billion annual rate last quarter, compared with a last month's estimate of $35.9 billion. The smaller increase after a $61.1 billion rate of increase in the second quarter, subtracted almost 1 percentage point from GDP.

``The good news is we don't have a big inventory overhang,'' Joel Naroff, president of Naroff Economics Advisors in New Holland, Pennsylvania, said before the report. The need to produce more in order to boost inventories may add to growth early next year, he said.

Final sales, which subtract inventories from the calculation, rose at a 5 percent annual pace, the most since the third quarter of 2003.

The drag on GDP from the trade deficit was less than estimated last month. The country imported $583.2 billion more goods and services at an annual rate than it exported last quarter compared with an initial estimate of $588 billion. The trade gap subtracted 0.1 percentage point from growth, compared with last month's estimate of almost 0.3 percentage point.

Government spending rose at a 0.7 percent annual rate last quarter after growing 2.2 percent in the second quarter.

To contact the report on this story: Carlos Torres in Washington at ctorres2@bloomberg.net

Last Updated: December 22, 2004 08:50 EST