WASHINGTON - The U.S. economy is continuing to expand at a modest pace with the help of consumer spending that is turning out to be better than expected, analysts said yesterday.
Their comments came after the Commerce Department reported that personal spending. which accounts for two-thirds of gross domestic product, advanced 0.5% in November.
Equally important, spending in September and October rose a revised 1% in each month, up from the increases of 0.9% and 0.7%, respectively, that were reported last month.
As a result of the higher levels of consumer spending, economists said they are likely to revise up their forecasts for U.S. output in the fourth quarter to around 3%. As recently as Dec. 1, forecasters surveyed by Blue Chip Economic Indicators were calling for fourth-quarter growth of only 2.1%.
The final estimate for third-quarter GDP released Tuesday showed the economy growing 3.4%, but many analysts had expected to see a much slower rate of growth to close out the year. Now, they are not so sure, and there is some optimism that growth of around 3% can be achieved next year.
"Clearly, the numbers the government is publishing are very strong," said Donald Fine, chief market strategist for Chase Securities Inc. Still, he added, the current pace of consumer spending is not sustainable, "and I think these numbers overstate the case."
The Commerce Department figures showed that consumers were continuing to draw down on savings to fuel their spending. Personal income in November rose a scant 0.2% because of a variety of special factors, and disposable personal income rose a meager 0.1%. The savings rate, or savings as a share of disposable income, fell to 4.2%, the lowest level since October 1990.
Reduced federal farm subsidies dampened the November income figures. But last month's income also looked weak after a 1.1% surge in October income on bonus payments to auto workers, government restitution payments to Japanese-Americans, and retirement incentive payments to postal workers. In addition, October rental income rebounded as property owners recovered from the effects of Hurricane Iniki.
Excluding all these special factors, personal income rose a healthy 0.8% in November following a 0.5% rise in October, officials said. Wages and salaries, the biggest component of income, rose 0.7%.
Mark Obrinsky, senior economist for the Federal National Mortgage Association, said, "the tone here is more of strength than of weakness. It would appear that the pace of economic growth picked up a notch this November and is continuing in December."
Obrinsky said he will take a second look at his forecast calling for growth in the range of 2% to 2.5% in the fourth quarter.
Joseph Liro, senior vice president for S.G. Warburg & Co., called the personal spending figures released by the Commerce Department "cheeky" and said they do not reflect a pace that can be sustained. "Part of this is pent-up demand. The consumer stepped up purchases after a hiatus of several years."
Earlier this week, the National Bureau of Economic Research, a private group that dates turns in the business cycle, said the recession began in July 1990 and ended in March 1991.
Liro said he expects to revise up his forecast of 2.3% growth in 1993, which does not take into account any stimulus program from President-elect Bill Clinton. "It's going to be hard to make a pressing case for a big stimulus package on a short-term basis, but we're going to get something," he predicted.
Analysts did not pay much attention to another Commerce report showing that new orders for durable goods in November tumbled 1.9%. The decrease reflected a large downturn in commercial aircraft and parts that more than offset an increase in motor vehicles.
Excluding the volatile transportation sector, orders were up 1%.
Moreover, October orders for durable goods increased a revised 4.6%, from the 4.1% gain reported earlier.
