Jobless Claims in U.S. Drop to Three-Year Low

The fewest workers in three years filed claims for U.S. jobless benefits last week, indicating the world’s largest economy is strengthening heading into 2012.

The number of applications for unemployment payments dropped by 19,000 to 366,000 in the week ended Dec. 10, less than the lowest forecast of economists surveyed by Bloomberg News and the least since May 2008, according to Labor Department figures issued today in Washington. Other reports showed manufacturing accelerated this month after pausing in November.

“The U.S. economy, unlike the rest of the world, is gathering momentum as we head toward year-end,” said Eric Green, chief market economist at TD Securities Inc. in New York. “The labor market is improving sharply,” he said, and “we look for gains in industrial production.”

A reduction in firings may pave the way for an increase in employment that will help spur consumer spending, which accounts for about 70 percent of the economy. Lean inventories and growing demand may probably spark gains in production that will keep factories at the forefront of the expansion.

The Standard & Poor’s 500 Index rose, snapping a three-day drop, on the improving economic outlook. The gauge climbed 0.6 percent to 1,218.71 at 1:03 p.m. in New York.

Manufacturing may contract this month from China to the euro region as global demand slows and Europe’s leaders struggle to contain the worsening debt crisis, reports today showed.

Global Manufacturing

Chinese factory output may decline for a second month in December as Europe’s fiscal woes weigh on exports and home sales slide, preliminary results from a Markit Economics survey indicate. In the euro area, manufacturers may face a fifth straight month of contraction as the region endures its worst quarter for 2 1/2 years, a separate report showed.

Manufacturing in the regions covered by the Federal Reserve Banks of New York and Philadelphia accelerated more than forecast in December as orders and employment grew.

The so-called Empire State Index, covering New York, northern New Jersey and southern Connecticut, climbed to the highest reading in seven months. The Philadelphia Fed’s gauge for eastern Pennsylvania, southern New Jersey and Delaware, rose to an eight-month high.

The improvement helped ease concern factory demand was cooling after another report from the Fed in Washington showed industrial production unexpectedly dropped in November for the first time in seven months. Output at factories, mines and utilities declined 0.2 percent after a 0.7 percent gain in October. Economists forecast a 0.1 percent advance, according to the median estimate in a Bloomberg survey.

‘More Timely’

“The weakness in November followed strength in October, so I wouldn’t necessary extrapolate one month,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut. “Given this month’s jump in the Empire State Index, it does suggest that there was factory output growth in December, which is a little more timely.”

The decrease in production was led by a drop in auto output even as sales increased last month to the highest level since August 2009.

Reports indicate that the floods in Thailand may have caused shortages in some auto parts, said Cummings, “so you might be getting effects from that as well, which shows that it may be just a temporary event in November.”

“November was one of the strongest sales months of the year,’ Erich Merkle, sales analyst for Ford Motor Co., said on a Dec. 1 teleconference. “Sales appeared to be carrying strong momentum as we finish the year and head to 2012, a very encouraging sign.”

Producer Prices

Another Labor Department report today showed the producer price index increased 0.3 percent last month after declining 0.3 percent in October.

Jobless claims were projected to increase to 390,000 from 381,000 initially reported for the prior week. Estimates ranged from 375,000 to 412,000. The Labor Department revised the previous week’s figure up to 385,000.

“We’re seeing improvement in labor-market conditions,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “It’s good to see claims moving this much below 400,000.”

The financial industry is among those most affected by the European debt crisis. Morgan Stanley (MS), the investment bank whose shares have declined 45 percent this year, said today it plans to cut about 1,600 jobs amid a drop in revenue from investment banking and trading. The figure amounts to about 2.6 percent of the 62,648 employees New York-based Morgan Stanley had at the end of September.

Firing, Hiring

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

A hiring summary index, developed by economists at Goldman Sachs Group Inc., has climbed to the highest level since mid 2008. “The improvement is an encouraging sign for employment growth, at least over the next several months,” according to a report today by Andrew Tilton, a New York-based economist at the bank.

The gauge tracks forward-looking measures like job openings, planned hiring by small businesses and Manpower Inc.’s quarterly survey.

Slow progress in the job market remains a concern for the Fed, which this week left unchanged its statement that economic conditions are likely to warrant “exceptionally low” interest rates “at least through mid-2013.”

“While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated,” the central bank said in a statement after its meeting on Dec 13.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

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

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