Claims for unemployment benefits fell to the lowest since April 2008 and consumer confidence reached the second-highest level in four years, indicating the labor-market recovery is helping sustain demand.
Applications for jobless insurance dropped by 5,000 last week to 359,000, the Labor Department said today in Washington. The Bloomberg Consumer Comfort Index was little changed at minus 34.7 in the period to March 25, close to the minus 33.7 reading two weeks earlier that was the strongest since March 2008.
“The labor-market improvement is unambiguous,” said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston, the third-best forecaster for gross domestic product in the two years through February, according to data compiled by Bloomberg News. “We are going to see consumer spending improving. The big drivers -- jobs and wealth -- are moving more favorably, and confidence is as well.”
Six months of the strongest job growth since 2006 are underpinning the sentiment of consumers, whose spending accounts for about 70 percent of the world’s largest economy. At the same time, gasoline near $4 a gallon leaves Americans with less to spend on other goods, posing a risk to sales at retailers like Family Dollar Stores Inc. (FDO)
Smoothing Out Claims
The Labor Department revised the claims data to reflect updates to the seasonal adjustments used to help smooth out week-to-week changes. The result of the adjustment led to higher levels of initial claims over recent weeks, while leaving intact the trend of declining dismissals over the past year. The revision also made it difficult to compare with economists’ projections before the report.
The median forecast in the Bloomberg survey of 46 economists called for 350,000 claims. The Labor Department revised the previous week’s figure to 364,000 from an initially reported 348,000.
In the U.K., house prices fell the most in two years, and mortgage approvals dropped to an eight-month low as economic uncertainty hurt demand for property and banks tightened lending conditions.
Home values decreased 1 percent in March, the biggest decline since February 2010, Nationwide Building Society said in an e-mailed statement today. Lenders granted 48,986 property loans to Britons in February, compared with 57,899 in January, the Bank of England said separately.
Another report on the U.S. economy today showed gross domestic product expanded at a 3 percent annual rate from October through December, the same as previously estimated.
Corporate profits climbed 0.9 percent in the fourth quarter, the slowest pace in three years, the figures from the Commerce Department showed. Business spending on new equipment and software rose more than initially reported, while consumer purchases grew at a 2.1 percent pace to match the previous estimate.
The Bloomberg survey of confidence showed that over the past three weeks, at least 30 percent of households said they had a favorable view of the buying climate, the longest stretch since early 2008.
Fewer firings and more hiring “has bolstered consumer confidence despite rising gasoline prices,” said Joe Brusuelas, a senior economist at Bloomberg LP in New York. “The improvement in the labor market does suggest that households expect to increase purchases of big-ticket durables to replace worn-out stock.”
The comfort index was minus 34.9 in the week ended March 18. Since its inception in December 1985, the comfort index has averaged minus 15.2.
The Bloomberg comfort survey has a three-point margin of error, and the index has been above minus 40 -- the level associated with recessions or their aftermath -- for seven straight weeks.
The index of whether it’s a good time to buy increased to minus 37 from minus 38.6. The measure of Americans’ views of the state of the economy dropped to minus 66.7 last week from minus 64.9 the prior week. The gauge of personal finances was little changed at minus 0.4 compared with minus 1.3 the prior week.
Brighter job prospects and rising wages are giving consumers the wherewithal to sustain spending in the face of higher prices at the gas pump. Retail sales climbed 1.1 percent in February, the biggest gain in five months, after a 0.6 percent advance a month earlier that was larger than previously estimated, figures from the Commerce Department showed this month.
Clothing stores and auto dealers were among those showing improving demand last month. Cars and light trucks sold in February at the fastest pace in four years, according to Ward’s Automotive Group.
“We are beginning to see some signs that the economy is slowly starting to improve,” Howard Levine, chairman and chief executive officer at Matthews, North Carolina-based Family Dollar Stores, said in a conference call with analysts on March 28. “Yet consumers still face some headwinds, especially from rising gas prices, which could strain discretionary purchases and impacts the pace of recovery.”
A gallon of regular unleaded gasoline has increased to a 10-month high of $3.92 as of yesterday, according to AAA, the nation’s largest automobile association.
The labor market is helping cushion the hit to pocketbooks. Payrolls grew by 227,000 in February after a 284,000 gain in January. The unemployment rate held at a three-year low of 8.3 percent following five consecutive declines. Worker pay jumped in the last six months of 2011 by the most in almost five years.
Federal Reserve Chairman Ben S. Bernanke said while he’s encouraged by the unemployment rate’s decline, continued accommodative monetary policy will be needed to make further progress.
“A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed,” Bernanke said March 26 to the National Association for Business Economics. “Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labor force.”
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