GNP Growth Up in Quarter, So Is Inflation : Effects of New Tax Law Cast Cloud Over Outlook

The U.S. economy enjoyed a moderate rebound in growth in the summer, but inflation picked up as well, the Commerce Department reported Wednesday.

Analysts said the question now is whether the economic revival can be sustained in the face of uncertainty over the new tax law.

The Commerce Department also reported Wednesday that after-tax profits of U.S. corporations rose 5.5% in the July-September quarter, the biggest increase in three years.

Substantial Increase

The department said the gross national product, the broadest measure of economic health, grew at an annual rate of 2.8% from July through September, a substantial increase from the barely perceptible 0.6% advance during the spring.

But inflation, which had been almost non-existent in the spring, revived as well. A price measure tied to the GNP was rising at an annual rate of 3.8% during the summer, double the spring pace.

Prices as measured by the GNP deflator, which checks a changing market basket of goods, rose just 1.8% in the April-June quarter, the best performance since early 1967.

However, a steep plunge in energy costs ended during the summer, and prices of food picked up substantially.

The 2.8% GNP rate represented only a slight downward revision from a month ago, when the government estimated that the economy was growing at a 2.9% pace during the third quarter.

The new report was in line with analysts’ expectations, but they said it failed to answer the bigger question of how the economy will perform in coming months.

The Reagan Administration last week scaled back its estimate of growth for 1987 to 3.2%, down from a 4.2% projection made in August.

Even the 3.2% estimate is viewed as too high by many private economists, who contend that the country will have to endure a sluggish start to the new year as businesses cut back sharply on investment plans because of the adverse impact of the tax overhaul.

“The Administration forecast is at the upper end of the plausible range of outcomes for next year,” said Allen Sinai, chief economist for Shearson Lehman Bros. of New York. “The economy picked up its pace in the third quarter, but the big question is whether this pace can be sustained.”

Sinai predicted that GNP growth could fall to a rate of around 1.5% in the first three months of next year as businesses feel the pinch from $20 billion in extra taxes next year.

In its corporate profits report, the Commerce Department said after-tax profits reached an annual rate of $135.9 billion in the third quarter, compared to $128.8 billion in the second quarter. The increase was the biggest gain since an 11.3% rise in the third quarter of 1983.

The new report represented an upward revision from an estimate a month ago that after-tax profits rose 4.3% in the third quarter.