NEW YORK (CNN/Money) - Consumer confidence in the United States exploded in March to its highest level since August 2001 a private research group said Tuesday, indicating that consumers, who propped up the economy during the latest recession, will not stop spending anytime soon.

The Conference Board, a private research group, said its index of consumer confidence rose to 110.2 in March from a revised 95.0 in February. Economists surveyed by Briefing.com expected a confidence reading of 98.0.

"Consumers' confidence has been bolstered by the improvement in business and labor market conditions," said Lynn Franco, director of the Conference Board's Consumer Research Center. "The latest gains are striking. This new boom in confidence should translate into increased consumer spending and stronger economic growth ahead."

Separately, the Commerce Department said orders for durable goods such as cars and computers rose 1.5 percent $179.4 billion in February after rising a revised 1.3 percent in January. Economists surveyed by Briefing.com had forecast that durable goods orders would rise 1.0 percent.

But excluding volatile defense items, orders for goods meant to last longer than three years fell 0.2 percent in February after rising a revised 1.4 percent in January. Excluding volatile transportation items, durable goods orders fell 1.3 percent after rising a revised 0.2 percent in January.

The headline number rose for the third straight month, the longest streak of gains since October-December 1999.

"The headline number is encouraging, but if you strip out the volatile components and look at core growth, it's telling you we're turning the corner, but we're not running around the corner," said Anthony Chan, chief economist at Banc One Investment Advisors.

U.S. stock prices reacted quickly to the consumer confidence data, rising in early trading before giving back most of their gains in the afternoon. Treasury bond prices fell.

Still, some economists pointed out that the Conference Board's number is notoriously volatile and doesn't always predict how consumers will behave.

"I wouldn't give this a lot of weight and say this is leading the economy," said Henry Willmore, chief economist at Barclays Capital. "It's sort of catching up to what has been strong economic activity for several months now."

The Conference Board's Present Situation Index, measuring how consumers feel about the current state of the economy, rose to 111.5 from 96.4 in February, the biggest gain for that component in 25 years. The Expectations Index, measuring how consumers feel about the future, jumped to 109.3 from 94.0, the biggest gain in nearly 10 years.

One key to consumer spending this year will be the labor market. Unemployment rose to 5.8 percent in December 2001, and more than a million jobs have been cut since March 2001. Unemployment typically lags economic activity -- though it fell in the first two months of 2002, many economists think it could rise again this year while businesses wait to be sure of a recovery.

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Nonetheless, consumers are more optimistic about the job market, according to the Conference Board. Of the 5,000 consumers surveyed, 20.6 percent expect more jobs to become available in the next six months, compared with 18.3 percent in February, while the number expecting fewer jobs fell to 13.6 percent from 19.5 percent to 13.6 percent.

Despite the gains in confidence, Reuters reported that Instinet Research's Redbook Retail Sales Average, which measures sales at U.S. discount, chain and department stores, fell 0.8 percent in the three weeks ended March 23, compared with the first three weeks of February.

And Bank of Tokyo-Mitsubishi and UBS Warburg's Weekly Chain Store Sales Snapshot showed that sales fell 0.6 percent in the week ended March 23 after a 0.1 percent gain the prior week, Reuters said.

The durable goods report was also somewhat sobering. The gain in the headline orders number was led by an 8.6 percent gain in transportation orders, including a 41 percent jump in aircraft orders. Defense capital goods orders jumped 78.6 percent. Among the sectors showing losses were semiconductors, down 8.9 percent; automobiles, down 5.9 percent; and computers, down 3.1 percent.

Though orders have shown steady improvement lately, Tuesday's report highlights recent warnings by Federal Reserve Chairman Alan Greenspan and other economists that final demand for goods would need to be strong enough to spark higher production in the first quarter of 2002 following a record reduction in inventories in the fourth quarter of 2001.

If demand doesn't increase, then the economy's recovery from its first recession in a decade will be muted. The Fed cut its target for short-term interest rates 11 times in 2001 to set the stage for recovery. It left rates alone at its first two policy meetings of 2002 and recently said the risks to the economy were balanced between a risk of inflation and a risk of continuing weakness. Most observers expect the Fed to start raising rates again this year to keep inflation at bay.

Recent manufacturing data have pointed to a recovery in that sector, which fell into a 19-month recession after businesses stopped spending on new technology and equipment after the spending boom of the late 1990s.

But the Federal Reserve Bank of Philadelphia recently said its index of manufacturing activity in the eastern United States was weaker than expected. According to a Reuters report, William McDonough, president of the Federal Reserve Bank of New York, said Tuesday that business spending continued to be the weakest part of the economy, while inflation was unlikely to rise anytime soon -- hinting that the Fed would take its time raising rates.

Earlier Tuesday, Reuters reported that Dallas Fed President Robert McTeer said raising rates "may be a need sometime in the coming year, but let's wait until we get there."

McTeer, speaking to journalists at a banking conference in Prague, Czech Republic, reportedly agreed with forecasts for first-quarter growth in U.S. gross domestic product (GDP) of between 5 and 6 percent, which would be the strongest performance since the second quarter of 2000. He thought 4 percent GDP growth in the second quarter was "a good number," according to the report.