Weakconsumer,businessdemand may slowUSgrowth

WASHINGTON

(AP) U.S. consumers and businesses spent cautiously last month, a sign that strong growth during the spring and summer may decelerate in the final three months of the year

he figures released Wednesday were a mild disappointment after data the previous day showed the economy had expanded at the fastest pace in over a decade in the second and third quarters.

"The economy is poised to slow again as we move into the fourth quarter, after a stellar catch-up from last year's horrific winter weather," Diane Swonk, an economist at Mesirow Financial, said in a note to clients.

Consumers opened their wallets a bit in October, boosting their spending by a lukewarm 0.2 percent. That was only slightly better than September's flat reading.

Yet incomes also rose just 0.2 percent, matching September's increase. Because hiring has been healthy this year, many economists have been expecting a stronger pickup in income. Limited increases in pay could restrain future spending by consumers, which accounts for 70 percent of the U.S. economy.

Businesses also cut back on orders for industrial machinery, computers and other equipment, a sign that business investment spending may slow in the October-December quarter. Factories received fewer orders for the second straight month in a key category that tracks business investment plans.

PaulAshworth,an economist at Capital Economics, said he now expects the economy will expand at a 2.5 percent annual rate in the fourth quarter, down from an earlier forecast of 3 percent. Macroeconomic Advisers, a forecasting firm, projects growth of just 2 percent.

While those figures would represent modest progress, they are much lower than the third quarter's 3.9 percent expansion and the second quarter's 4.6 percent growth. The two quarters represent the best sixmonth pace since 2003.

Other data on Wednesday painted a mixed picture of the U.S. economy, adding to the year-end uncertainty.

In a positive sign, a measure of consumer sentiment by the University of Michigan rose to a seven-year high, suggesting consumers could ramp up their spending during the holiday shopping season.

With a steadily improving job market and falling gas prices, economists say American households are ready to shed any lingering caution. The National Retail Federation, a trade group, is forecasting that holiday sales will rise 4.1 percent from last year. That would be the biggest gain in three years.

Still, two additional reports Wednesday showed that housing, traditionally a key driver of the economy after recessions, remains sluggish. New home sales ticked up slightly to a seasonally adjusted annual rate of 458,000 in October. But that figure is up only 1.8 percent from 12 months ago.

Sharp price increases have likely held back sales: the price of a typical new home has soared 16.5 percent in the past year to $305,000.

Separately, the number of signed contracts to buy homes fell slightly in October, which indicates that sales of existing homes may decline in the coming months. Existing home sales rose last month to an annual pace of 5.26 million, their fastest this year. But that's still below the 5.5 million consistent with a healthy housing market.

Inflation remains low, which could also help boost spending over the holidays. Aprice gauge included inthe spending report rose by just 1.4 percent over the past 12 months, well below the Federal Reserve's 2 percent inflation target. Asian

stock markets mostly posted modest gains as stronger U.S. growth was tempered by a less rosy outlook for China.

KEEPING SCORE: Hong Kong's Hang Seng rose 0.1 percent to 23,868.35 and Australia's S&P/ASX 200 added 1 percent to 5,385.70. Japan's Nikkei 225 dropped 0.1 percent to 17,399.73 while China's Shanghai Composite rose 0.5 percent to 2,580.85. Seoul's Kospi inched up 0.1 percent to 1,982.62.

US GROWTH: The U.S. economy grew at a solid 3.9 percent annual rate in the July-September period, faster than the 3.5 percent that was initially reported, underlining its status as the only major economy that is gathering momentum. The upward revision was due to higher estimates of spending by consumers and businesses, the Commerce Department said.

THE QUOTE: "Markets received more good news on the US economy," said Ric Spooner, chief market analyst at CMC in Sydney. "However, local investor focus is likely to be closer to home with mounting concern over China's economy," he said. Doubts about China's ability to sustain growth above 7 percent are evident in weakness in the Australian dollar and falling iron ore prices, Spooner said.

CHINA JITTERS: The short-lived boost that stock markets got from China's interest rate cuts on Friday suggests growing pessimism about growth prospects for the world's No. 2 economy. Growth slipped to a five year low of 7.3 percent in the third quarter and indicators such as manufacturing have weakened since then. Some forecasters predict growth of less than 7 percent in China next year.

WALL STREET: Stocks have been drifting gradually higher this month, having rebounded sharply from a slump in October, as investors have grown more confident that actions from central banks around the world will help bolster the global economy.