[SIZE=3][u][b]Economy Booms Ahead on Investment Surge[/b][/u][/SIZE]
WASHINGTON (Reuters) - Robust business and consumer spending powered the U.S. economy ahead in the third quarter at an even brisker clip than first thought, the government said on Tuesday in a report that also showed the biggest corporate profits jump in more than a decade.
Gross domestic product, or GDP, shot up at an 8.2 percent annual rate, more than double the second quarter's 3.3 percent gain and the strongest quarterly advance in 19-1/2 years.
A month ago, the Commerce Department estimated that GDP had grown at a 7.2 percent rate in the third quarter.
Reinforcing an impression that a stronger-paced recovery was gaining traction, a separate private-sector report found consumer confidence hit a year-high peak in November, buoyed by hopes of improved hiring prospects.
The New York-based Conference Board said its index of consumer confidence climbed to 91.7, its highest level since September 2002, from a revised 81.7 in October. Wall Street analysts had forecast a rise to 85.0.
A reinvigorated economy could be a significant factor in next year's U.S. presidential elections -- now less than a year away -- as Bush administration officials move swiftly to take credit by saying the revival owed primarily to the administration's tax cuts.
BUY EARLY, BUY OFTEN
"As the holiday season begins, families are shopping with confidence because the economy is gathering added steam and creating more jobs," Commerce Secretary Don Evans said.
Despite the positive economic indicators, stock and bond prices were largely unchanged in early trading, with traders still wary whether a sharp economic rebound will be lasting.
One sour note came from the housing sector -- one of the economy's mainstays in the crawl back from recession in 2001 -- where sales of existing homes dropped sharply by 4.9 percent to 6.35 million in October.
Sales for the full year 2003 are on track to set a record, analysts say, but a recovering economy eventually will mean higher interest rates that can be a damper on home sales.
The GDP report pointed to a long-awaited revival in corporate investment, with nonresidential business spending surging at a 14 percent annual rate, double the second quarter's 7.3 percent and ahead of the initially reported third-quarter rise of 11.1 percent.
Analysts said this number was especially heartening.
"This is a red hot economy," said economist Patrick Fearon of A.G. Edwards and Sons Inc. in St. Louis, Missouri. "It looks like a lot of the revision came in investments, which is a positive sign because that had been an area of real weakness for a while."
CLEAR THE DECKS
The department revised its estimate of inventory cuts, saying stocks of unsold goods fell by $14.1 billion in the quarter instead of the $35.8 billion it originally reported.
Consumer spending, bolstered by tax cuts, grew at a revised 6.4 percent annual pace in the third quarter, below the 6.6 percent pace estimated a month ago but well ahead of the second quarter's 3.8 percent.
Most forecasters say the third-quarter jump in GDP is unlikely to be matched in coming quarters as the impact of this year's tax cuts wanes but they still foresee growth in a range of about 4 percent for the balance of this year and into 2004.
Economist Ken Mayland of Clearview Economics LLC in Pepper Pike, Ohio, said the report showed a better balance in growth that was promising for continued healthy expansion.
"The next phase of economic recovery has to be reinforced by capital spending ... here we have some very strong evidence that businesses loosened up on the purse strings: a real sign of confidence in the economy," Mayland said.
Corporate profits after tax climbed at a 10.6 percent annual rate during the quarter, a sharp change from the second quarter's 5 percent contraction. Commerce said it was the strongest pickup in profits since a 12.4 percent jump in the fourth quarter of 1992.