Consumer confidence returns for holiday

WASHINGTON -- Consumers' confidence in the economy rebounded in November after sinking to a nine-year low, raising hopes that the holiday shopping season will see more Santas than Scrooges.

Other reports on Tuesday also suggested the economy can get through its rough patch without sliding into a new recession: The economy grew more briskly in the summer than previously thought and new-home sales slowed in October but still posted the third-best month on record.

The latest batch of economic news indicated that consumers -- the main force keeping the economy going this year -- will keep their pocketbooks and wallets open wide enough to prevent the economic recovery from fizzling, economists said.

"Shell-shocked consumers paused for awhile in the fall but now they are feeling better," said Sung Won Sohn, chief economist at Wells Fargo. "The confidence report ... points to a decent holiday shopping season. I don't think consumers will turn out to be the Scrooges that many feared."

Consumer confidence, after sagging for five months, rose in November, lifted by improved expectations about employment and income, the Conference Board said. The private research group's Consumer Confidence Index jumped to 84.1 from 79.6 in October, a nine-year low.

Disappointing Wall Street

While that heartened economists, Wall Street investors were disappointed because November's showing still was weaker than analysts were expecting. The Dow Jones industrial average lost 172.98 points to close at 8,676.42.

With consumers in better spirits and a refinancing boom providing many people with extra cash, "the holiday shopping season might come in on the strong side of expectations," said Merrill Lynch economist Gerald Cohen.

Separately, gross domestic product, considered the best barometer of the nation's economic health, grew at a 4 percent annual rate in the July-September quarter, faster than the 3.1 percent growth rate estimated a month ago, the Commerce Department said.

Stronger inventory building by businesses, more robust spending by the government and an improved trade picture were the major reasons behind the upward boost to third quarter GDP.

GDP measures the total value of goods and services produced within the United States. The revised reading, based on more complete data, exceeded the 3.8 percent pace analysts were forecasting.

While the economy roared like a lion in the summer and in the first three months of this year, when it grew at a 5 percent rate, it slept like a lamb in the spring, growing at a mediocre 1.3 percent rate.

Even with the third-quarter bounce back, analysts believe the economy -- pounded by the turbulent stock market and worries about a possible war with Iraq -- is losing momentum in the current October-December quarter.

Forecasters at the National Association for Business Economics are predicting a 1.4 percent growth rate in the current quarter.

But a big part of the expected slowdown, economists said, will reflect weaker auto sales, which have been quite brisk and gave a big boost to third-quarter GDP.

"This is a Rodney Dangerfield economy -- it's not getting any respect," said Ken Mayland, president of ClearView Economics. "In fact, the economy is doing better than it is getting credit for."

Still, the uneven growth so far this year is a source of apprehension for the Federal Reserve and the Bush administration. The Federal Reserve -- wanting to boost economic growth -- cut a key interest rate this month by a half percentage point, its first rate reduction this year.

In a third report Tuesday, new-home sales fell by 4.5 percent in October to a seasonally adjusted annual rate of 1.01 million, the Commerce Department said. But even with the decline, October's sales pace marked the third best monthly level on record.

Economists expected sales to slow from September's all-time high monthly sales pace of 1.05 million, powered by low mortgage rates.

In another encouraging sign, the GDP report also showed that after-tax profits of U.S. corporations grew at a 2.1 percent rate in the third quarter, up from a 1.7 percent pace in the second quarter.

Economists say businesses are more likely to increase capital investment -- a crucial ingredient to the economy's return to full health -- once profits, which took a hit during the recession, recover.