Economy Surging at Year's End

Dec. 1, 2005 — -- With the holidays and the end of the year approaching, the economy has done an about-face, reversing negative summer prognostications and turning in positive results in several key categories.

The Dow Jones Industrial average climbed 106 points today, the market's best performance in a month. Stocks are at four-year highs, and 11,000 points is within striking distance for the Dow. It's just another in a string of examples that the U.S. economy is buoyant.

"The market is telling you that things are really good in the economy -- not as bad as we had thought they would be two months ago after we saw Hurricane Katrina, Hurricane Rita, and we had that very sharp rise in energy prices and the prices at the pump," said Hugh Johnson, chief investment strategist with Johnson Illington Advisors.

In fact, gas prices have now dropped 30 percent from their hurricane high of $3.07 per gallon. Prices at the pump fell to $2.15 per gallon this week.

The gloomy forecasts of the summer have now given way to rosy projections for the new year.

"Very surprising how well the economy has weathered these storms. And it's growing very strongly now and the growth is broadbased," said Mark Zandi, chief economist with Moody's Economy.com.

Consumers Keep Buying, Company Profits Soar

Behind the stock rebound are record profits at American companies and an American consumer that continues to defy expectations and spend away.

This week there's evidence that consumers are still buying new homes at a record pace despite rising mortgage rates. And retailers reported a promising start to the holiday shopping season, especially for discounters.

"Just a few weeks ago I thought Christmas sales would be tepid. But now I think they'll be downright good," Zandi said.

Tomorrow economists expect more good news when the government releases its jobs report for November. The report is expected to show a big increase in hiring.

"So if consumers and business are both spending for the remainder of 2005 and right through 2006, that's just what the doctor ordered for this economy," Johnson said.

Fears about inflation have also calmed. Inflation appears to be in check, and the Federal Reserve has signaled that it may soon stop raising interest rates after 12 consecutive increases. That's just one more reason the stock market is rallying and could reach 11,000.

ABC News business correspondent Betsy Stark filed this report for "World News Tonight."