NEW YORK (CNNMoney.com) -
The economy shook off Hurricane Katrina and just about every other obstacle in the third quarter, growing at the fastest rate in a year and a half and topping even the most optimistic forecasts, a government report showed Wednesday.
The growth came without any troubling signs of rising inflation -- news that's good for workers on Main Street and investors on Wall Street.
Gross domestic product, the broadest measure of economic activity, grew at a 4.3 percent annual rate in the quarter, the Commerce Department said, up from its original estimate of 3.8 percent growth made a month ago. Economists surveyed by Briefing.com had forecast that GDP growth would be revised up to a 4 percent rate.
The revised reading was the fastest pace of growth since the first quarter of 2004 and well above the 3.3 percent rate of growth in the second quarter.
The growth came despite two major hurricanes that slowed economic activity in the quarter, energy price shocks, higher interest rates and a record trade deficit in September, which subtracts from GDP.
"I think if you would have excluded the hurricanes, you would have been talking as much as 4.7 percent," said Anthony Chan, senior economist with JPMorgan Asset Management. "I don't think anyone would argue 4.6 percent."
The report also showed inflation largely in check, even creeping backwards.
A reading on prices for personal spending excluding food and energy, one of the more closely watched inflation readings said to be a favorite of Fed Chairman Alan Greenspan, rose at a 1.2 percent rate in the quarter, down from the 1.3 percent gain in the department's initial report.
Overall the price index rose 3.0 percent, down from the 3.1 increase previously reported.
"It's about as perfect a GDP report as you can get," said John Silvia, chief economist for Wachovia Securities. "We had thought the economy was doing OK, but we didn't think it was doing this well."
On Wall Street, stocks were little changed after falling Monday and Tuesday on worries that recent signs of economic strength could force the Federal Reserve to raise interest rates more aggressively.
The two-day drop had threatened to disrupt the recent rally that's driven the S&P 500 and the Nasdaq market to 4-1/2 year highs and put the Dow industrials within striking distance of 11,000 -- a level last seen in June 2001.
Art Hogan, chief market analyst at Jefferies & Co., said that investors were reassured by the GDP report's modest inflation readings, which helped calm worries on Wall Street that an overheating economy might spur the Fed to hike its fed funds rate to 5.0 percent or higher.
Most economists have been saying the nation's central bank, which has been raising rates for 17 months, would probably stop sometime next year when the fed funds rate, an overnight bank lending rate, reached 4.5 or 4.75 percent.
"The most important thing as we look at the economic data, we are really at a point where we need Goldilocks," said Art Hogan, chief market analyst at Jefferies & Co., referring to a so-called Goldilocks economy that's not too cold or too hot.
"The more benign news we have on inflation, the better it is."
New home sales are soaring despite rising interest rates. Full story.
For a look at what the economy means to you and the markets, click here.
Plus: 33 moves to make now to get your financial house in order. More here.