Drop in U.S. Jobless Claims, Rising Consumer Confidence Point to Recovery

Fewer Americans filed claims for jobless benefits last week and consumer confidence stabilized, a sign the world’s largest economy is weathering the jump in commodity prices heading into the second quarter.

The number of applications for unemployment insurance payments fell by 6,000 to 388,000 in the week ended March 26, a one-month low, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index rose to minus 46.9 last week from a seven-month low of minus 48.9.

Business activity expanded in March at close to the fastest pace in two decades, a report from members of a Chicago purchasing managers group also showed, indicating strengthening sales in the U.S. and overseas are helping manufacturers like United Technologies Corp. (UTX) A report tomorrow is projected to show the February pickup in payrolls was sustained this month.

“We have an economy that is growing solidly,” said Jim O’Sullivan, chief economist at MF Global Inc. in New York. “Continued strength in manufacturing is the bottom line here. All numbers are pointing to improvement in the labor market.”

The Labor Department also issued its annual revisions to the seasonal-adjustment factors, which caused a “mild upward shift” in the number of jobless claims, an agency spokesman said as the figures were released to reporters.

Applications were projected to fall to 380,000 from 382,000 initially reported for the prior week, according to the median forecast of 42 economists in a Bloomberg News survey. Estimates ranged from 370,000 to 390,000. The Labor Department revisions pushed the previous week’s figure up to 394,000.

Trending Down

“The key point here is that the trend is still clearly downwards,” Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note to clients. “The labor market recovery is gathering momentum.”

Stocks fell, trimming the biggest first-quarter rally for the Standard & Poor’s 500 Index in 13 years, amid a jump in oil prices and concern Europe’s debt crisis is worsening. The S&P 500 dropped 0.2 percent to 1,325.83 at the 4 p.m. close in New York. It advanced 5.4 percent during the first quarter, the most for the period since 1998. Treasury securities declined, sending the yield on the benchmark 10-year note up to 3.47 percent from 3.44 percent late yesterday.

A slowdown in firings and growing payrolls may spur further gains in consumer spending, which accounts for about 70 percent of the economy.

Companies added 210,000 workers to payrolls in March after a 222,000 gain last month, while the unemployment rate held at 8.9 percent, economists project a Labor Department report tomorrow will show. The two-month gain in private employment would be the biggest since 2006.

Hiring to Accelerate

“The labor market is slowly but surely improving,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “We’ll see hiring begin to accelerate over the next few months.”

The Bloomberg Consumer Comfort Index increased last week for the first time in more than a month as Americans said their finances were in better shape. A strengthening job market may help consumers overcome strains from the highest gasoline prices in more than two years and rising grocery bills.

“It’s a mixed bag out there,” said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio, “The income rises and job growth are the major drivers at this point, so in general the consumer can withstand some higher prices.”

The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 70.6 this month from February’s 71.2 reading that was the highest since July 1988. The index exceeded the 69.9 median forecast of economists surveyed by Bloomberg. Figures greater than 50 signal expansion.

Employment, Backlogs

The group’s employment measure climbed to the highest level since 1983, and its index of order backlogs increased to a 37- year high.

United Technologies, the maker of Pratt & Whitney jet- engines and Otis elevators, is among companies benefiting from growth in the so-called BRIC countries that include Brazil, Russia, India and China. The Hartford, Connecticut-based company this month boosted the low end of its 2011 earnings forecast amid improving markets across its divisions.

“We see a lot of momentum and growth in emerging markets that have outpaced really developed markets,” Louis Chenevert, chairman and chief executive officer, said on a conference call with investors on March 23. “I’m confident that the momentum will continue.”

Manufacturing Nationally

Economists watch the Chicago index and other regional manufacturing reports for an early reading on the overall outlook. The ISM’s national factory index may be little-changed at 61 this month after February’s 61.4 reading that was the highest since May 2004, according to the median forecast of economists surveyed. The Tempe, Arizona-based group’s figures are due tomorrow.

Another report today showed orders placed with factories unexpectedly fell in February for the first time in four months, reflecting weaker demand for capital goods and military aircraft.

Bookings for manufacturers’ goods decreased 0.1 after a revised 3.3 percent gain in January that was larger than previously reported, according to figures from the Commerce Department. Excluding transportation equipment, demand rose, boosted by a pickup in non-durable goods.

“The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” Federal Reserve officials said in a statement after their meeting on March 15.

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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