Analysts and some European finance ministers have been calling for American consumers to spend less and save more. But, to cite Tom Petty, American consumers seem to be saying: "I'll keep this world from dragging me down and I won't back down."

Indeed, there were no signs of trouble in the bevy of data Thursday. Interest rates stayed low in the third quarter and, by a range of measures, consumer balance sheets improved even as energy prices rose. Still, sentiment about the future remains mixed, improvements in consumers' health has not shown up in retail sales for the holiday season, and the housing market remains a potential sore spot -- the sector's latest signs of strength notwithstanding.

Consumers owed a record $7.3 trillion on home mortgage loans and $2.1 trillion on other borrowings at the end of the third quarter, the

Federal Reserve

reported Thursday. That represented an 11% increase from a year earlier on mortgages and 4% on other debt.

But households' net worth still increased faster as the value of real estate owned climbed to $18 trillion, up 15%. Disposable personal income increased 4.3% from a year earlier, the Fed said, outpacing the 12-month 2.5% increase in the consumer price index over the same period.

Separately, the Labor Department reported that while import prices have been rising for businesses, they are still pretty flat for consumers. The price of imported goods purchased by consumers increased just 0.1% in November and 0.4% over the previous 12 months. Overall, import prices have increased 9.5% over the past 12 months and 3.5% excluding oil. The value of the dollar dropped 2.7% in the month against a trade-weighted average of foreign currencies, putting pressure on importers to make hikes.

Finally, the Mortgage Bankers Association said the delinquency rate for mortgage loans in the third quarter was just about unchanged from the second quarter at 4.41%, and down 0.24% percentage points from a year ago. The amount of loans in foreclosure was also about unchanged at 1.14%, down 0.1% points from a year ago.

The report was consistent with figures released last week by the U.S. federal courts showing that personal bankruptcy filings declined almost 4% in the third quarter from a year ago. That marked the fourth consecutive year-over-year decline in quarterly bankruptcy filings, albeit from record levels. A total of 1.58 million cases were filed for the 2004 fiscal year ended Sept. 30, the second-highest total ever after 2003's 1.63 million filings.

And that's a point to keep in mind if the economy weakens in 2005, as appears likely from the most recent payrolls report and string of declines in the leading economic indicators. The economy was stronger in 2004 than in 2003, interest rates remained very low and yet bankruptcy levels stayed near record high levels. Similarly, the Fed's consumer debt service ratio, which measures how much of income is consumed by debt payments, has come slightly off its record levels but remains historically high.

Higher interest rates also would challenge indebted households especially with the increasing reliance on adjustable-rate mortgages and home equity lines of credit.

Or as Petty says: "There ain't no easy way out."

As an aside, the Fed's report also showed that corporations took in more cash than they spent on capital goods in the third quarter. The $39 billion gap was the fourth negative reading in the past five quarters, an unprecedented string of corporate conservatism. Some of the gap occurred because of the accelerated depreciation tax benefit available to companies through the end of 2004. As companies took more depreciation upfront and will have less to use in the future, that should help close the gap, according to Economy.com analyst Zoltan Pozsar.

"Corporate balance sheets remain in great health by any measure and are very well-positioned to take on expansion ventures," Pozsar wrote in a commentary on the Fed report. "However, as an indication that business confidence has returned to normal levels, the financing gap will yet have to post a positive trend, for in the 50-year history of the series, the gap has only seldom been negative, let alone for this long."

Wild Ride, Small Gains

Stocks had a wild ride Thursday as the major indices opened on a down note due to weak results posted late Thursday by semiconductor makers

Xilinx

(XLNX) - Get Report

and

Altera

(ALTR) - Get Report

. But a brighter outlook from

National Semiconductor

(NSM)

midday Thursday and the market's ability to stay above its November lows brought buyers back.

The

Dow Jones Industrial Average

finished up 0.6% at 10,552.82 after trading as low as 10,418.63. The

S&P 500

closed at 1189.24, up 0.5%. After the most wild ride of all, the

Nasdaq Composite

closed up just 0.1% at 2129.01 after trading as low as 2097.86.

National Semiconductor finished up 5% while the Philadelphia Exchange's semiconductor index ended down 1.5%. Xilinx lost 3% and Altera fell 8%.

Homebuilders screamed higher on the fiscal fourth-quarter results of

Toll Brothers

(TOL) - Get Report

, which jumped 13% on its highest one-day volume since Jan. 13, 2003. The luxury home builder said it earned $2.22 a share, well above analysts' estimates of under $2, and raised its forecasted earnings growth rate next year to 40% from 30%, sending its shares up 11%.

D.R. Horton

(DHI) - Get Report

gained 6% and the Philadelphia exchange's housing index climbed 3%.

As

noted here after last month's release of the October new-homes sales report, with long-term interest rates as low or lower than a year ago, the real estate market is still smoking and the day of reckoning is still in the future. The Commerce Department's October new-home sales report showed the highest average price ever and the fourth-highest pace of sales ever.

At Toll, the company's backlog decreased from the previous quarter for the first time in two years, and the average price paid in new sales declined for the first time in just more than two years. Bulls noted that the backlog was still up 44% from a year ago -- 51% including subsidiaries that aren't controlled by Toll. Prices were up 17% from a year earlier.

Still sounds closer to a top than an entry point.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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