Drop in Jobless Claims a Sign Market is Mending

Fewer Americans than forecast filed applications for unemployment benefits last week, reflecting a drop in firings that may signal the job market is on the mend.

Jobless claims fell by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed today in Washington. Other data showed consumer sentiment has stabilized around levels usually associated with recessions, and wholesalers boosted inventories heading into the holidays.

A decrease in firings may foreshadow bigger gains in hiring that will help Americans gain enough confidence in the economic recovery to sustain the pickup in holiday spending into 2012. Nonetheless, the specter of a slump in Europe brought on by the debt crisis and government haggling over the U.S. budget loom as obstacles to bigger increases in employment.

“The U.S. continues to show solid momentum in what has been the Achilles heel of the recovery, the labor market,” said Eric Green, chief market economist at TD Securities Inc. in New York. “It reinforces what is a big divergence in economic fortunes between the U.S. and Europe. If the European crisis takes a turn for the worse, the knock-on effect to the U.S. means good data today can sour quickly.”

Stocks fell after European Central Bank President Mario Draghi said he didn’t signal plans to purchase more bonds last week, damping speculation the central bank will act. The Standard & Poor’s 500 Index dropped 1.3 percent to 1,245.22 at 11:35 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 1.98 percent from 2.03 percent late yesterday.

Cutting Rates

The ECB today reduced its benchmark rate by a quarter percentage point to 1 percent, matching a record low. It pledged for the first time to offer banks unlimited cash for three years and loosened the collateral rules it imposes when lending to financial institutions.

In Asia, machinery orders in Japan unexpectedly fell in October for a second straight month, signaling that a slowing global economy and the strong yen are prompting companies to postpone investment. Bookings, an indicator of capital spending, decreased 6.9 percent from a month earlier, the Cabinet Office said in Tokyo, a larger decline than predicted by all 27 economists surveyed by Bloomberg News.

The median jobless claims forecast of 47 economists in a Bloomberg survey called for a drop to 395,000. Estimates ranged from 375,000 to 410,000. The Labor Department revised the prior week’s figure, which included the Thanksgiving Day holiday, up to 404,000 from a previously reported 402,000.

Consumer Comfort

The Bloomberg Consumer Comfort Index was at minus 50.3 in the period ended Dec. 4, after a reading of minus 50.2 the prior week, a report showed today. The gauge has been at minus 50 or worse for 11 of the past 12 weeks, an unprecedented stretch of pessimism in its 26-year history.

“Consumer confidence appears to be stabilizing, albeit near historically low levels,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “However, that stabilization is quite tenuous. Like the U.S. economy, consumer confidence is at risk due to the events unfolding in Europe and the increasingly divisive rhetoric coming out of Washington.”

Inventories at U.S. wholesalers rose in October by the most in five months as distributors moved to bring stockpiles in line with demand, a report from the Commerce Department also showed. The 1.6 percent increase followed no change in September.

Rebuilding Inventories

The gain shows companies are trying to rebuild stockpiles as sales improve, which will help the world’s largest economy accelerate this quarter. Economists at Barclays Capital Inc. in New York raised their tracking estimate for fourth-quarter gross domestic product to a 3.2 percent annual rate following the report from 2.8 percent. GDP grew at a 2 percent pace from July through September.

The improvement in jobless claims may have been exaggerated by seasonal effects, said Brian Jones, a senior U.S. economist at Societe Generale in New York.

“The numbers are moving in the right direction,” said Jones, who forecast a drop to 380,000. “You have to be careful because we’re around the Thanksgiving holiday and the Department of Labor has a hard time adjusting around floating holidays.”

A Labor Department spokesman said there was nothing unusual in the state level data last week.

The seasonal-adjustment factors projected applications would jump by about 182,000, representing a rebound from the shortened, Thanksgiving holiday workweek and the biggest upward adjustment for the year. Instead they climbed by about 151,000, pushing down the adjusted reading, the spokesman said.

Seasonal Firings

The decrease may also reflect fewer year-end seasonal dismissals, the spokesman said.

The number of people continuing to receive jobless benefits dropped by 174,000 in the week ended Nov. 26 to 3.58 million, the fewest since September 2008. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 211,600 to 3.31 million in the week ended Nov. 19.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

The unemployment rate unexpectedly dropped to 8.6 percent in November and payrolls increased by 120,000 after a 100,000 gain the prior month that was larger than previously estimated, figures from the Labor Department showed last week.

President Barack Obama and congressional leaders are trying to put together a package of year-end tax and spending provisions that can be enacted, including an extension of the payroll tax cut and jobless benefits.

Many lawmakers agree that the 2 percentage-point cut in the payroll tax for employees, which expires Dec. 31, should be extended through 2012. They also agree that Congress should continue expanded unemployment benefits and prevent Medicare reimbursements from being cut in January. They disagree over how to offset the cost to the U.S. Treasury and on what other provisions should be added.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

Enlarge image

Jobless Claims in U.S. Decrease

John Moore/Getty Images

Job applicants register before entering the 'Denver Hires Job Fair' on December 5, 2011 in Denver, Colorado. The number of people on unemployment benefit rolls and those getting extended payments also decreased.

Job applicants register before entering the 'Denver Hires Job Fair' on December 5, 2011 in Denver, Colorado. The number of people on unemployment benefit rolls and those getting extended payments also decreased. Photographer: John Moore/Getty Images

8:22

Dec. 8 (Bloomberg) -- Lakshman Achuthan, chief operations officer of the Economic Cycle Research Institute, talks about the U.S. economy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)