WASHINGTON -- The U.S. economy grew at a surprising annual rate of 2.7% in the third quarter, bringing production of goods and services to slightly above prerecession levels after a year and a half of sluggish growth, the Commerce Department reported yesterday.
But a separate report issued yesterday by the Conference Board Inc. said consumer confidence tumbled in October for the fourth straight month on continuing worries over the economy and the outlook for the future. The index compiled by the New York-based business organization plunged from 57.3 to to 53.0, the lowest reading since February.
People surveyed by the Conference Board were especially pessimistic about the job market, with only about 5% of the households calling jobs "plentiful," while more than 10 times as many people called them "hard to get."
About one-quarter of all house-holds reported that a household member has been unemployed in the last year, with an average jobless period of about six months. More than half of those who found new jobs said they were earning less than before.
The Conference Board's index is drawn from a survey of 5,000 households and uses 1985 as a base reading of 100.
Bush administration and campaign officials hailed the gross domestic product report as a milestone and as evidence that better economic times lie ahead. "This is a strong indication that the U.S. economy is on the right track," said Commerce Department Secretary Barbara Hackman Franklin in a statement.
Although the report surprised the bond market after predictions that growth would be little changed from the sluggish 1.5% pace of the second quarter, analysts said they expect revisions due out next month to show an economy that continues to bump along without much spark.
"It's not sustainable," said John Silvia, chief economist for Kemper Financial Services in Chicago. "The economy moves ahead fitfully, like someone caught in a traffic jam."
"There's no way the economy is really growing at 2.7% a year," said David Goldman, chief economist for Polyconomics in Morristown, N.J. "Exactly how these numbers were concocted I haven't gotten around to figuring out."
Goldman said he does not place much emphasis on consumer confidence surveys and instead prefers to use the stock market as a leading indicator of people's expectations. And the stock market, he said, "at current levels is still forecasting extremely anemic growth."
The Commerce Department said consumer spending, which accounts for two-thirds of gross domestic product, advanced a healthy 3.4% after dipping 0.1% in the second quarter.
Growth also got a boost from government spending, according to the department's figures, especially a 4.4% spurt in defense outlays that marked the first expansion in a year. In addition, business purchases of inventories contributed $6.9 billion to the gross domestic product accounts after adding $20.4 billion in the second quarter.
Real final sales, a measure of demand that excludes inventories, increased a healthy 2.1%, or $25.2 billion, following a decrease of 0.1% in the second quarter.
Analysts said the gross domestic product figures probably overstated the economy's strength for a number of reasons, including over-optimistic Commerce Department estimates for the September figures on merchandise trade and inventories.
Economists also said the gains in consumer spending came during the early part of the quarter and are not likely to continue. "All the strength was in June and July, and that lifted the overall number up," said Sally Kleinman, money market economist for Chemical Securities Inc.
Analysts also said they suspected some of the increase in defense outlays was a fluke, stemming from federal efforts to provide security and relief supplies in Louisiana and Florida after Hurricane Andrew.
Analysts liked the inflation figures in the Commerce Department report, however. The department's fixed-weight price index for gross domestic product rose only 2.1%, down from 2.9% in the second quarter and the lowest rate in six years.
Opinions were mixed on how the Federal Reserve may act in the current economic environment, with some analysts seeing the possibility of another round of rate cuts and others saying the Fed will probably remain on hold.
"The economy is weak but not falling off a cliff, and there will not be a need to ease, but there will not be a need to tighten, either, since inflation remains under control and a tightening would be counter-productive," said Kleinman.
Joseph Liro, senior vice president for S.G. Warburg & Co., said he still believes the Fed may slash short-term rates again, including the discount rate, on renewed evidence of economic weakness.