Blistering Third Quarter Economy

This is a partial transcript of Special Report with Brit Hume, November 25, that has been edited for clarity.

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BRIAN WILSON, GUEST-HOST: As we mentioned earlier, the economy grew at a blistering pace in the third quarter, even better than first thought. Consumer confidence is up as we head into the Christmas buying season. What caused this rebound? Will its last? Does it have political ramifications? You know, when we need stuff like that explained around here at FOX News, we turn to our No. 1 explainer guy, business news managing editor Neil Cavuto, who joins me now from New York.

Neil, thank you for joining us.

NEIL CAVUTO, FOX NEWS BUSINESS MANAGING EDITOR: Thank you, Brian.

WILSON: So what caused this growth?

CAVUTO: Well, we did, Brian. I mean not you and me individually, but maybe significant others. We don't know. But there was a great deal of consumer buying in the latest period. And we really misgauged just how much consumers were spending, fairly much across the board. And there were a lot of companies that were busy trying to stock their shelves to keep up with that consumer spending. This so-called inventory build-up is one of the big reasons why we're seeing the growth we are.

WILSON: Well, let's take a look at the numbers from the first, the second and the third quarter, which will give us some idea of what we're talking about. How dramatic it was.

First quarter, 1.4 percent, that's rather anemic. Third quarter, 3.3 percent, a little better, but nothing to write home about. Then in the third quarter, at first we thought it jumped to 7.2 percent. They looked at the numbers after a little bit of time passed, and they graded them up to 9.2 percent. That is pretty astonishing. That breaks the records, doesn't it?

CAVUTO: Indeed. And now there is the possibility, you know, this will be revised one more time. It could be revised still further.

Now, there are a couple of things going on here. Durable good orders, things that are meant to last three years or more, and that could cover everything from refrigerators all the way up to airplanes are very, very strong. I don't know if you've been buying airplanes, Brian, but clearly people are buying across the board. And it's benefiting across the board from men's and women's clothing to mainframe computers.

This type of across the board activity is something we've not seen really to the degree we're seeing it now since 1984. Now, a lot of folks are saying that this was spurred on by the president's tax cuts, just as in 1984, a lot of the economic growth we saw then was spurred by Ronald Reagan's tax cuts. It is a bit too early to say whether this can last. But we do know how it started and it started very well.

WILSON: Now, when you see the economy start to heat up like this, one of the things you start to worry about is interest rates perhaps climbing. And when interest rates climb, then you lose the exciting movement we've been seeing in the real estate market. Is that something we should watch in the days ahead?

CAVUTO: It is something to look for. Existing home sales and some of the new construction activity has ebbed just a bit. But I stress just a bit. The fact of the matter is, Brian, that interest rates are still very, very low. You might not be able to get a 5-something-30-year fixed mortgage, but you'll get something at around 6 percent, which isn't that bad.

And perspective is everything here, Brian. I know you and I can probably remember in the days when Ronald Reagan first assumed office, when you were dealing with double-digit interest rates, a prime approaching 21 percent. So, when we talk about interest rates backing up, let's look at that for really what it is. There -- we've gone from 40-year lows in rates to about 35-year lows, still very low.

WILSON: Now, at the same time, we've gotten some good news about consumer confidence. Which indicates that people have an optimistic outlook about the future of the economy. Take a look at the numbers. Although unemployment was at 6 percent in November, November consumer confidence now stands at 91.7 percent according to at least one listing. And that's very strong.

CAVUTO: Indeed. You know, what's left out of that is the so-called Expectations Index (search). The reason why this is the big number for me today, Brian, and not necessarily the GDP, because this is now. This is a November piece of information, not an end of a third quarter piece of information that actually goes back to September 30, at its most recent. This is how we are thinking as a country right now. And we collectively are much more optimistic.

And when you dig inside that sentiment survey, Brian, here is one thing that really floored me. When people are asked to judge where they are going, they are more optimistic about where they're going. Furthermore, when they are asked about their own job prospects, a healthy majority of them are saying, you know what? I'm going to find a better job or get better pay at my present job.

And what's more, when they are asked to explain how things are for out of work members of their family or friends, increasingly, they're saying they're more optimistic that those people are going to find work.

Now, there is a great chasm, as you know between hope and reality.

But this is the most hopeful Americans have been in quite some time. And generally the rule of thumb is, Brian, as you know, when people are hopeful and more upbeat, they tend to buy more, they tend to do more. And for the economy, it measures more. So we'll just have to see.

WILSON: Well, that is beginning to sound like it might be a pretty good Christmas buying season, a time of year when a lot of real -- people out there in the business world make most of their profit.

CAVUTO: Absolutely. This accounts for about half of it for a lot of the big retailers. And they're already indicating, at least anecdotally to me, Brian, that sales are going to be very, very strong. And we've seen it from the stores that you frequent, like Nordstrom (search) and Tiffany (search) ... all way down to the Best Buys (search) and Sharper Image (search).

Across the board, again these guys are saying these things look good. In fact, the prevailing wisdom out there is we're going to see about 3 to 5 percent growth. I think that is being very conservative, Brian. My own prediction, and I'll just disown this tape and burn it if I'm wrong, is we're going to see double that. Because there is this pent-up buying that was not the case last year. Certainly wasn't the case after the Christmas following the September 11 terrorist attacks.

So, there is much more pent-up demand than there was. And it is an easy give me here because we're coming off such a lousy period last year that heady gains are not out of the question. Again, I say up to 8 percent gains over what we had.

WILSON: Wow! Well, you heard it here first, ladies and gentlemen. Neil Cavuto, thank you very much.

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