WASHINGTON - Two favorable economic reports released yesterday provide additional signs that the economy's rate of growth will continue to improve modestly through next year, analysts said.
The Conference Board reported that its consumer confidence index surged nearly 13 points, to 78.3 in December, its highest reading of the year, following a similar gain in November.
Separately, the National Association of Realtors reported that existing home sales advanced 5.8% in November to a seasonally adjusted annual rate of 3.85 million units, the highest level in almost six years.
"The latest jump [in consumer confidence] is a sign that this recovery is here to stay." said David Jones, chief economist of Aubrey G. Lanston & Co. He forecast 3.5% real growth in gross domestic product, fourth quarter to fourth quarter, next year.
Economists said the gain in existing home sales supports the idea that the current level of consumer confidence can be sustained.
"Confidence is one thing, but it's also important to watch what people do. That gain in existing home sales tells me people are confident." said Stuart Hoffman, chief economist of PNC Financial Corp.
Hoffman forecast real growth in the 2.75% to 3.25% range next year, but said it is difficult to predict whether it will be stronger in the first or second half of the year.
The confidence index declined through the final three months of the presidential campaign, August to October, and then rebounded nearly 23 points since the election in early November, according to the Conference Board.
"The bounce [in confidence] was linked to the election," said David Cohen, an economist with MMS International.
As proof, Cohen and other economists pointed out that the component of the confidence index measuring expectations of the future surged 33.8 points to 104.5 in the two months following the election. Meanwhile, the component of the index measuring feelings about current conditions was up a scant 8.5 points, to 39.0.
"The important question is, is this spike [in confidence] for real? And I think it is." Jones said.
For the most part, other economists agreed. Cohen said he is guardedly optimistic that the economy will continue strengthening. "We are seeing confirmation that conditions have improved over the last few months," he said.
Irwin Kellner, chief economist at Chemical Banking Corp., said the confidence index can sustain readings in the high 70s, but cautioned that the recent surge in confidence will not "necessarily lead to a bout of new consumer spending."
Kellner and other economists said significant gains in consumer spending in the coming months require an improving job market. They also say the public needs to continue believing that President-elect Bill Clinton's administration will help rather than hurt the economy.
Kellner predicts 2.5% real growth in the first half of next year and 3.5% growth in the second half. He and other analysts forecast continued yet modest improvements in the housing and labor markets next year, which will foster growth.
"We're not going to be led out of this recession by the housing market like in the past, but it will provide modest stimulus," Jones said.
Also yesterday, the National Association of Realtors reported that the gain in existing home sales in November followed a revised 10.3% advance in October, previously reported as a 9.1% increase.
Through November, existing home sales are up 19.2% compared to the same period last year, the realtors' group reported.
In addition, the group said the average price of existing homes declined 0.5% in November. This resulted primarily from declining real estate values in the West, where the average price for an existing home dropped 3.6% in November.