The U.S. economy is shifting into high gear as Christmas approaches, defying economists' forecasts that growth would moderate and promising a strong finishing kick for the fourth consecutive year, a wave of strong economic reports showed yesterday.
Factories hummed at a 10-year high rate in October, incomes, employment and even personal savings rose, and Christmas sales are off to a running start despite warm weather that slowed retail business early in November, the reports showed.
But the flood of good news rekindled inflation fears and sent sagging stock and bond markets into a new tailspin. And it gave the jitters to securities traders and economists as they waited for the last big basket of pre-Christmas figures, the Labor Department's monthly employment and unemployment statistics, due out today.
"It's strength pretty much across the board, and it looks like we are going to have to increase our fourth-quarter growth estimates for the fourth year running," said Alfred G. Smith III, chief economist for NationsBank.
The bank's estimates had called for the annualized gross domestic product growth to slow to "something over 3 percent" in the fourth quarter, but now are likely to be revised upward to "somewhere over 4 percent," Mr. Smith said.
GDP growth in the third quarter was at a 3.9 percent annual rate, substantially higher than the 3.4 percent estimated earlier last month, the Commerce Department reported Wednesday.
"These figures are just terrific, and the personal income figures in particular couldn't come at a better time, just right to set up a strong Christmas," said Charles W. McMillion, president of MBG Information Services, a Washington-based economic consultancy.
Mr. McMillion, who had been expecting GDP growth at a 3.2 percent annual rate in the fourth quarter, said that he, too, will be boosting his estimate, soon after today's labor figures are in hand.
Yesterday's reports showed that:
* Americans' personal incomes rose faster in October than at any time since last February, the Commerce Department reported. The jump of 1.4 percent far outran economists' forecasts of a 1 percent increase and more than doubled September's 0.6 percent increase. It was the ninth consecutive monthly increase in personal incomes.
* Consumer spending rose by a more modest 0.7 percent but still outstripped private economists' consensus forecast of 0.6 percent.
* Manufacturing growth surged again in October, driving the National Association of Purchasing Management's manufacturing index to a 10-year high of 61.2, a big jump from September's 59.7. Any time the index is above 50, manufacturing is growing.
* Help-wanted advertising, a leading indicator of future employment trends, leapt to 128 on the Conference Board's index in October from 117 in September. It had stood at 107 a year earlier.
On Wall Street, the wave of strong reports reinforced fears that only still more tightening by the Federal Reserve, which has raised short-term interest rates six times this year, can bring annualized GDP growth rates down to the 2.5 percent that the Fed has made its target as it fights to wring inflationary tendencies out of a persistently strong economy.
The Dow Jones industrial average lost 38.36 points to close at 3,700.87. The benchmark 30.25-year U.S. Treasury bond lost as much as half a point by midafternoon but recovered by the close to lose only 0.0625 point, yielding 8.0 percent.
"We can expect hiring to proceed apace over the next few weeks, but it would be a mistake to read long-term strength into that," said Michael A. Conte, director of regional economic studies at the University of Baltimore.
"Especially for Maryland, the real test is going to be next spring, when we see how the next round of one-family house sales goes, and as of now I think it will be very modest," he said.