THE US economy shrugged off the impact of hurricanes Katrina and Rita to accelerate in the third quarter, with growth boosted by strong consumer and government spending.

Confidence in America’s economic resilience was boosted by the better than expected official figures showing third-quarter (Q3) growth running at an annual pace of 3.8 per cent, up from 3.3 per cent in the previous three months.

Ahead of a further expected increase in US interest rates from the Federal Reserve on Tuesday, the data also offered reassuring news on inflation, with price pressures still muted despite soaring oil prices.

Economists said that the buoyancy of yesterday’s GDP report suggested that the US economy already had substantial momentum before the hurricanes struck and should continue to see robust expansion in the final quarter of the year.

The US Commerce Department said it was unable to separate out the full economic effects of the hurricanes. But it estimated that the storms probably wiped $40 billion (£22.5 billion) off US incomes from lost wages and rents, so that third quarter growth would have been even more potent without this blow.

Despite the hurricanes’ impact, with real household disposable incomes estimated to have fallen at an annualised rate of 0.9 per cent in Q3, consumers’ spending still rose at an annual pace of 3.9 per cent in the quarter.

Government spending rose at an annual rate of 3.2 per cent, its fastest for a year and a half, thanks to a jump in defence expenditure.

There was further good news on business investment, which rose at a 6.2 per cent annual rate, boosted by an 8.9 per cent increase in spending on equipment and software.

America’s foreign trading performance continued to disappoint, however, with net exports adding only 0.1 percentage points to Q3’s expansion.

Growth was meanwhile dragged lower as businesses cut stocks for a second quarter in a row, although this could help to bolster future growth if they now start to boost inventories.

Amid a bout of anxiety in US bond markets over the threat of rising inflation pressure from an oil-driven surge in energy costs, the GDP figures’ prices data offered some comfort for fretful investors.

Despite the leap in US petrol prices, “core” inflation, excluding energy and food costs, eased in Q3 on the GDP-based measures. The so-called “personal consumption deflator”, a price gauge favoured by Alan Greenspan, the Fed Chairman, showed core prices rising at 1.3 per cent a year, compared with 1.7 per cent in the second quarter.

Separate figures for US employment costs showed little sign of rising energy costs leading to increased wage pressures. Overall employment costs are showing an annual gain of only 3.1 per cent, the smallest increase in six years, according to the US Labour Department.

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