U.S. Economy: Jobless Claims Drop to Two-Year Low

Claims for jobless benefits dropped last week to the lowest level in two years, showing the U.S. labor market is taking a turn for the better as the economy accelerates into 2011.

Applications for unemployment assistance decreased by 34,000 to 388,000 in the week ended Dec. 25, breaking the 400,000 level for the first time since July 2008, according to Labor Department figures today in Washington. Other data showed businesses expanded this month at the fastest pace in two decades and pending home sales climbed in November for the fourth time in five months.

Firings may keep easing as a pickup in consumer spending prompts employers to retain staff, a necessary step toward increases in employment that will sustain demand. Gains in business investment and exports to growing emerging economies may keep factories churning out goods in the coming year, while more jobs may also help housing stabilize.

“The economy is gathering momentum,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in an interview on Bloomberg Television. “The character of the recovery is a little more solid. Job growth will be stronger and that will help the consumer.”

Stocks declined as the Standard & Poor’s 500 Index’s highest valuation since June overshadowed the economic data. The S&P 500 fell 0.2 percent to 1,257.88 at the 4 p.m. close in New York. The benchmark 10-year Treasury note declined, pushing the yield up to 3.37 percent from 3.35 percent late yesterday.

Better Than Forecast

The median forecast of 29 economists surveyed by Bloomberg News projected claims would drop to 415,000. Estimates ranged from 395,000 to 430,000. The Labor Department revised the prior week’s figures to 422,000 from a previously reported 420,000.

The Institute for Supply Management-Chicago Inc. said its business barometer rose to 68.6 this month, exceeding the most optimistic forecast of economists surveyed and the highest level since July 1988. Figures greater than 50 signal expansion.

Reports showing consumer spending is picking up mean retailers will need to restock shelves, giving manufacturing a further lift. Holiday sales this year jumped 5.5 percent for the best performance since 2005, MasterCard Advisors’ SpendingPulse, which measures purchases by all payment forms, said this week.

“Once the American consumer starts kicking in, we will see stronger orders data,” Silvia said. “New orders will follow the better business confidence that is showing up.”

Multiyear Highs

The Chicago group’s bookings and production gauges climbed to the highest levels in six years, while employment increased to a five-year high.

The number of contracts to buy previously owned homes rose more than forecast in November, a sign sales are recovering following a post-tax credit plunge, figures from the National Association of Realtors also showed today.

The index of pending resales increased 3.5 percent after jumping a record 10 percent in October. The median forecast in a Bloomberg survey called for a 0.8 percent rise in November, and the group’s data go back to 2001.

Home demand is stabilizing after sales collapsed to a record low in July, as the effects of a tax incentive worth as much as $8,000 waned. A jobless rate hovering near 10 percent means foreclosures will remain elevated and any recovery in housing, the industry that precipitated the worst recession since the 1930s, will take time to develop.

“Very Strong Note’

“We’re ending the year on a very strong note,” said Conrad DeQuadros, a senior economist at RDQ Economics LLC in New York. “This recovery is looking more sustainable. The labor market is improving, and the manufacturing numbers are quite robust. We’re seeing further stabilization in home resales.”

While last week’s claims data covered the Christmas holiday, leaving jobless Americans with one less day to file for benefits, a Labor Department spokesman said there was “nothing unusual” in the tally.

The four-week moving average, which helps eliminate week- to-week distortions, also dropped to the lowest since July 2008.

The number of people continuing to receive jobless benefits rose by 57,000 in the week ended Dec. 18 to 4.13 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 151,500 to 4.53 million in the week ended Dec. 11.

New Stimulus

President Barack Obama on Dec. 17 signed into law an $858 billion bill extending for two years Bush-era tax cuts for all income levels. The measure also continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes for workers by two percentage points during 2011.

Businesses adding workers include Motorola Inc., the Schaumburg, Illinois-based maker of mobile phones.

“We have been” hiring, co-Chief Executive Officer Greg Brown said in a Bloomberg Television interview on Dec. 15. Even so, “we need to create jobs faster.”

The Labor Department’s monthly jobs report next week will show payroll gains picked up in December after employers added a fewer-than-forecast 39,000 jobs last month, according the economists surveyed. The jobless rate fell to 9.7 percent from 9.8 percent in November, the survey also showed.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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