WASHINGTON — The U.S. economy was expanding at a robust annual rate of 4.3% immediately before the October stock market collapse, the government said Thursday in a report viewed as an encouraging sign that the country will be able to avoid a recession next year.
The Commerce Department said growth in the gross national product, the broadest measure of economic health, was even faster than previously believed from July through September as consumer spending and federal government outlays offset further deterioration in the trade deficit.
The news on inflation was good as well. A measure of consumer prices tied to the GNP was rising at a moderate annual rate of 3.4% in the third quarter, down from a 4.1% rate of increase in the spring.
"The economy was on a roll in the third quarter. These are the best set of statistics we have had in two years," said Allen Sinai, chief economist of Shearson Lehman Bros. of New York. "If nothing worse than the crash happens, then we should get be able to get through next year with decent growth."
The new GNP report represented the second time the growth rate has been revised upward. Last month, the government estimated the economy was expanding at a 4.1% rate in the third quarter, which was an upward revision from an initial 3.8% increase.
In the spring, GNP had grown at an annual rate of 2.5% following growth of 4.4% in the first three months of the year.
Various business barometers from housing construction to unemployment have shown that in November at least the country was suffering few ill effects from the record 508-point drop in stock prices that occurred on Oct. 19.
Analysts said these reports suggest there is enough strength in other sectors to make up for an expected fall-off in consumer spending as a result of slower auto sales and uneasiness caused by the stock market decline.
"Even if we have a retrenchment in consumer spending, we believe exports and business investment will keep the economy out of a recession in 1988," said John Hagens, chief economist for WEFA Group, formerly Wharton Econometrics.
For the first nine months of the year, the economy was growing at an annual rate of 3.7%. While economists are looking for the pace to slow in the fourth quarter, they said growth for the whole year is likely to come in at around 3.5%, even better than the Reagan Administration forecast at the beginning of the year of 3.2% growth.
There have been reports that the Reagan Administration will scale down its current 3.5% growth forecast for 1988, with some suggesting that it could be lowered by as much as a full percentage point.
That would still be higher than the consensus among private economists for growth of around 2% next year. Analysts expect the economy to be weak in the first half of 1988 but to rebound in the second half as the Federal Reserve pushes interest rates lower to keep the economy growing during a presidential election year.