Tame prices, confident builders aid growth

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WASHINGTON (AP) — The outlook for the U.S. economy brightened a little Tuesday after reports that consumer prices stayed tame and homebuilder confidence rose to the highest level in six years.

A third report showed factory output grew only modestly in September, a reminder that the economy is still weak.

Low inflation could give consumers even more incentive to spend at a time when their confidence is at a five-year high. That could boost growth and help lift American manufacturers out from their slump.

The consumer price index rose a seasonally adjusted 0.6 percent in September, the Labor Department said. The increase was driven by higher gas prices. When excluding gas and food costs, prices rose just 0.1 percent. Overall, prices have risen just 2 percent in the 12 months that ended in September, in line with the Federal Reserve’s inflation target.

The National Association of Home Builders said its survey of builder sentiment rose to a reading of 41 this month, the highest level since June 2006. The index is still below 50, which indicates negative sentiment about the market. But it has steadily climbed over the past year from a reading of 17, further evidence of a slow but steady housing recovery.

The Federal Reserve said that output at factories, mines and utilities rose 0.4 percent in September after a sharp decline in August. Factory output, the most important component of industrial production, edged up only 0.2 percent last month. The report also noted that factory output fell in the July-September quarter. That marked the first quarterly decline since the spring of 2009, when the country was still in recession.

Modest inflation leaves consumers with more money to spend. Consumer spending drives roughly 70 percent of economic activity.

Consumers may also be inclined to step up spending if their home values keep rising.

The homebuilder survey showed that sales and builders’ outlook over the next six months remained unchanged from September’s improved levels. And a measure of buyer traffic rose to its highest level since April 2006.

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