Drop in Jobless Claims Points to Spending Gains

Americans filed the fewest claims for jobless benefits since 2008, surprising forecasters and signaling that an improving labor market will give the world’s largest economy a boost.

Claims dropped by 13,000 in the week ended Feb. 11 to 348,000, less than the most optimistic estimate of 45 economists surveyed by Bloomberg News. Other reports today showed consumer confidence improved, housing starts climbed and manufacturing in the Philadelphia area accelerated.

Stocks rose on evidence that the U.S. expansion is gaining strength in the face of the European crisis and a slowdown in China. The decline in claims for jobless benefits coincides with a pickup in hiring that pushed the unemployment rate down to a three-year low last month, giving consumers the confidence to increase spending.

“The economy’s wheels just keep spinning faster and faster,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. He also said payrolls are likely to rise by more than 200,000 for a third straight month in February.

The Standard & Poor’s 500 Index advanced 1.1 percent to 1,358.05 at the close in New York. The yield on the benchmark 10-year Treasury note increased to 1.98 percent from 1.93 percent late yesterday.

Builders broke ground on more homes than forecast in January, helped by warmer weather and adding to signs the residential real-estate market is stabilizing, data from the Commerce Department showed today.

Housing Construction

Housing starts rose 1.5 percent to a 699,000 annual rate from a 689,000 pace in December that was stronger than previously reported. The median estimate in a Bloomberg survey called for a rise to 675,000. Building permits, a proxy for future construction, also climbed.

Manufacturing in the Philadelphia region expanded in February at the fastest pace in four months as orders and sales picked up.

The Federal Reserve Bank of Philadelphia’s general economic index increased to 10.2 from 7.3 last month. Economists forecast the gauge would rise to 9. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The report follows figures from the central bank yesterday that showed manufacturers across the country boosted production in January, capping the biggest back-to-back increases in more than two years.

Feeling Good

“For at least the last three weeks, we’ve felt very good about the demand,” Thomas Kadien, senior vice president of consumer packaging at Memphis-based International Paper Co., said on a Feb. 2 conference call. “From a North American perspective, the softness is behind us, and we feel much better about the first quarter.”

An improving job market is boosting consumer confidence, adding an impetus to the household spending that makes up 70 percent of the economy.

The Bloomberg Consumer Comfort Index rose to minus 39.8 in the period ended Feb. 12, the highest in a year, from minus 41.7 the previous week. It marked just the third time since April 2008 that the gauge has climbed above minus 40, a reading consistent with recessions or their aftermath.

Claims for unemployment insurance have fallen for three straight weeks, adding to evidence the labor market is recovering from the 18-month recession that ended in June 2009. The jobless rate in January unexpectedly fell to 8.3 percent, and employers added 243,000 workers to payrolls, the most in nine months.

No Fluke

“Businesses are realizing that in order to compete they need to not just keep their labor force, they need to expand it,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “This shows that the strong job gains we’ve seen in the last few months aren’t a fluke.”

Norfolk Southern Corp. (NSC), the second-biggest railroad company in the eastern U.S., is among employers boosting payrolls as demand grows.

“Employee levels rose 5 percent as we continue to hire trainees to handle our 2012 forecasted volumes,” James Squires, chief financial officer of the Norfolk, Virginia, based company, said on a Feb. 14 conference call.

Estimates for first-time claims ranged from 350,000 to 380,000 in the Bloomberg survey of economists. The Labor Department revised the prior week’s reading up to 361,000 from an initially reported 358,000.

The labor market improvement calls into question Fed forecasts that the jobless rate will end the year at 8.2 percent to 8.5 percent, Rupkey said.

February Forecast

“The unemployment rate is 8.3 percent right now in January and it could fall to 8.1 percent in the February report,” which will be released on March 9, he said.

Wholesale prices rose less than forecast in January as food and energy costs dropped, a sign inflation pressures may remain subdued, another report from the Labor Department showed today.

The producer price index rose 0.1 percent following a 0.1 percent decrease the prior month. Economists projected a 0.4 percent gain, according to the survey median. The core measure excluding volatile food and energy rose 0.4 percent, more than projected, led by a surge in drug prices.

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