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Updated from 10:40 a.m. EST

After soaring to new highs over the last six months, consumer confidence fell in October to its lowest level in a year as consumers' concerns grew over surging oil and heating costs and stock market volatility.

The retreat in confidence came even though another report Tuesday showed that consumers bought a surprisingly large number of new homes in September.


Conference Board

reported that consumer confidence fell to 135.2, down from a revised 142.5 in September, and below the consensus expectation of 140.0. That's the lowest level since October 1999.

While the consumers' confidence index typically falls in October, confidence in the country's economy has been shaken recently by nearly decade-high prices for crude oil and heating fuel and by a more than 20% drop in the

Nasdaq Composite Index

since early September.

However, given the weakness in the stock market early in the month, and the more recent improvements in the major stock indices, economists were hesitant to read too much into the one-month decline in consumer confidence.

Bill Dudley, chief U.S. economist for

Goldman Sachs

, said the October decline in consumer confidence is not likely to have much influence on the decisions of the

Federal Reserve's Open Market Committee

when it meets next in mid-November to consider raising interest rates.

"I would hold off judgment to see what happens in November. If it (the decline in confidence) were to continue than it would become important," said Dudley. "But given the recent behavior of stock market -- if the market continues to do better, then we're expecting a rebound in confidence in November."

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In another indication that economic growth in the U.S. may be slowing down, the

Chicago Purchasing Managers Index

for October showed a contraction in the Midwest's manufacturing industry, with the index falling to 48.7% -- down from 51.4% the previous month. The

National Association of Purchasing Management's

Chicago production index fell to 49.6% in October, the first time it has slipped below 50% since January of last year.

With backlog orders below 50%, analysts see little chance for significant near-term improvement. Though the employment index improved slightly from the previous month, it still remains weak at 42.1%.

The Chicago index may provide an indication of national trends. But the NAPM's national survey, due out Wednesday, is more closely watched as an overall economic indicator. The NAPM index rose slightly in September to 49.9%, but remained lower than expected.

Meanwhile, September's pace for new home sales was much stronger than expected, at about 946,000 units, the

Commerce Department

reported. The consensus estimate of economists had forecast September sales of about 887,000 units. However, the Commerce Department revised August's figures down from 893,000 to 866,000, bringing the average of the two months closer to the consensus at 906,000 units.

Based on August's revised figure, new home sales jumped more than 9% nationally in September. Much of the growth was concentrated in the Midwest, which reported a whopping 17.3% jump in sales. That may be in part a result of lower mortgage rates, with fixed rates falling below 8% in September, making home ownership more attractive.

In his analysis of the data, Michael Boldin of

said home sales were strong partly because mortgage rates declined, as tame inflation and signs of a moderated consumer appetite enabled the

Federal Reserve

to halt its string of interest rates increases. But he warned that if the new home sales figures create a sharp acceleration in new residential construction, the Fed will consider raising rates again.

Still, with consumer confidence at its lowest level in a year and the Chicago purchasing index showing a decline in manufacturing, there is evidence that the Federal Reserve's interest rate increases have already managed to slow the economy.

"More important is what happens to core inflation and unemployment," said Goldman Sachs' Dudley. "To ease monetary policy, we would have to see core inflation turn down or see a significant slack in employee numbers."

Producer price index growth in October will be released on Nov. 9, while the Consumer price index for October is due out a week later. The consensus is for a modest 0.2% increase in producer prices, according to No forecast was given for the consumer price growth. Jobless claims are released on a weekly basis each Thursday. Claims have declined for the past two weeks.

Since the summer of 1999 through May of this year, the Federal Reserve's Federal Open Market Committee has increased the federal funds rate -- the rate at which banks charge each other for inter-day or overnight loans -- a half-dozen times to 6.5%, from 4.75% in May 1999. The FOMC left interest rates unchanged at its last three meetings, but the committee has also made accompanying statements of heightened inflationary pressures.