The U.S. economy turned in a remarkably strong performance the third quarter despite surging energy prices and the battering the Gulf Coast states took from hurricanes.

The U.S. Commerce Department reported today that the gross domestic product (GDP) rose at an annual rate of 4.1% in the July-September quarter. It was the fastest pace of growth in 1½ years.

While down slightly from the 4.3% GDP estimate made a month ago, the new figure demonstrated that the economy kept expanding at a strong pace during the summer, led by solid increases in consumer demand, especially for autos, and business investment.

The third-quarter performance was up substantially from a 3.3% GDP growth rate in the April-June quarter and was the best showing since the economy expanded at a 4.3% rate in the first three months of 2004.

The increase in third-quarter growth came despite the fact that the country was hit by Katrina, the most expensive natural disaster in U.S. history, and by Rita.

An inflation gauge tied to the GDP rose at a rate of 3.7% in the third quarter, the fastest pace in more than a year and up from a 3.3% rate of increase in the second quarter.

However, excluding food and energy, the GDP inflation measure was up a more moderate 1.4%, the slowest increase in almost two years. Prices by this inflation measure had been estimated to have increased by an even lower 1.2% a month ago.

The economy had originally been estimated to have grown at a 3.8% rate in the third quarter, a figure that was revised up to 4.3% last month and now revised slightly lower to 4.1%.

The latest downward revisions reflected a slight change in the estimate of consumer spending, to a growth rate of 4.1% compared to last month’s estimate of 4.2%. Based on more complete data, the government lowered slightly its estimate of the degree to which spending on new autos had surged during the quarter as consumers responded to attractive sales incentives.

Business investment to modernize and expand operations was growing at a strong annual rate of eight% in the summer, slightly lower than previously believed, while spending on housing grew at a 7.3% annual rate, also slightly lower than last month’s estimate.

The GDP report also showed that the profits of U.S. companies from current production fell by US$54.4 billion in the third quarter compared to an increase of US$59.3 billion in the second quarter. The swing reflected in part a reduction in profits of US$165.3 billion from Katrina and Rita, which reflected benefits paid by domestic insurance companies and uninsured losses to business property.