The U.S. economy grew at an annual rate of 4.9% in Q3, prior to the full impact of the deepening housing recession and extensive subprime mortgage and related asset defaults.

The 4.9% growth rate, a revised statistic announced by the U.S. Commerce Department, was slightly higher than the 4.8% consensus estimate. In Q2, the U.S. economy grew at a 3.8% annual pace.

The U.S. economy has expanded 2.8% in the previous 12 months - close to what many economists believe to be its potential, or sustainable GDP growth rate.

Corporate profits from production fell 1.2% to an annual rate of $1.62 trillion, the first decline in that category since Q4 2006. Personal income rose at a 3.8% annual rate.

Economic Analysis: Given the economic activity lag effect, the market is likely to look past the Q3 GDP report and focus instead on the Q4 GDP report, which will more-fully reflect the effect of subprime losses on the economy. Likewise regarding the U.S. Federal Reserve: the Fed is likely to concentrate less on the solid Q3 GDP stat and focus more on the economic impact of the housing correction, tight credit markets high oil prices, and weak dollar when it meets December 11 to discuss monetary policy. The Fed is widely expected to cut key short-term interest rates by 25 basis points or one-quarter of a percentage point at that meeting.