THE ECONOMY: Confident builders and tame prices aid growth

WASHINGTON — The outlook for the US economy brightened a little Tuesday after reports that consumer prices stayed tame and home builder 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 economy remains the top issue for voters with just three weeks left before Election Day.

Tuesday’s data showed:

■ 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.

The report on low inflation contributed to a second straight day of strong gains on Wall Street. The Dow Jones industrial average closed up 127 points. Broader indexes also increased. Modest inflation leaves consumers with more money to spend.

The small increase in prices prompted the government to raise Social Security benefits 1.7 percent next year for 56 million recipients. The government increases benefits each year if
prices rise. The boost was one of the smallest since automatic adjustments began in 1975.

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

The home builder 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.

Americans are buying homes again, pushing up sales and prices after a six-year slump. The recovery has been modest and housing has a long way back to full health. But the steady increases suggest housing is no longer weighing on growth.

The same can’t be said for manufacturing, which has slumped since spring.

Europe’s debt crisis and slower growth in China and other emerging markets have hurt demand for American exports. Many companies have also held back on purchases of equipment and machinery. They are waiting to see if Congress can reach a deal before the end of the year to avert sharp tax increases and spending cuts.