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ECONOMY RISES 2.5 PERCENT; INFLATION RATE SLOWS

SHARE ECONOMY RISES 2.5 PERCENT; INFLATION RATE SLOWS

The nation's economy grew at a stronger-than-expected seasonally adjusted 2.5 percent annual rate in the July-September quarter, matching the growth rate for the second quarter of the year, the Commerce Department reported Thursday.

Meanwhile, the department reported that inflation climbed at a moderate 2.9 percent rate in the third quarter as measured by its price deflator, compared with a 4.6 percent rate in the second quarter.It was the lowest quarterly inflation rate since the April-June quarter of 1986, when it also was 2.9 percent.

The growth in the gross national product - the total of goods and services produced in the economy - followed an identical 2.5 percent annual rate of increase in the April-June quarter and indicated the economy was chugging along at a stronger clip than initially expected.

Economists had thought that the economy would become increasingly sluggish during the summer months under the pressure of the Federal Reserve's tight monetary policy and subsequent high interest rates.

But strong consumer consumption, especially for automobiles, kept the economy going. Personal consumption expenditures were up at an annual rate of 5.8 percent during the quarter, the fastest rate of growth since the first quarter of 1988, when it was 6.2 percent.

Within this category, expenditures for durable goods - those products such as cars designed to last at least three years - rose at a 15 percent annual rate, also the biggest rate of gain since the first three months of last year when the rate was 21 percent.

Meanwhile, the nation's net exports fell $22.9 billion, indicating a widening of the trade gap as the stronger dollar made U.S. products more expensive to foreigners. It was the biggest decline in U.S. net exports since the second quarter of 1983, when they were down $30.7 billion. The reason was while exports stayed even, imports rose at a 15.1 percent annual rate, the department said.

So far this year, the economy has grown at an annual rate of 2.9 percent. To reach the Bush administration's projection of a 2.7 percent growth rate for 1989, the economy would have to expand at a 2.1 pescint rate in the fourth quarter.

But economists noted that the economy grew weaker as the third quarter progessed and warned that the fourth quarter could be sluggish, with growth below 2 percent. A few economists, in fact, are predicting a recession if not in the fourth quarter than early next year.

Economic growth was not hurt much by Hurricane Hugo, but the storm did reduce personal income for the quarter by $4 billion. Personal income, not adjusted for inflation, rose $56.2 billion in the third quarter compared with $82.5 billion in the second quarter.

Thursday's report was the first of three monthly reports on the third quarter economic growth and could be substantially revised as the department reviews additional data.