American consumers last week were the most upbeat in more than five years as firings retreated for the first time to the lowest level since before the recession, paving the way for a pickup in economic growth.
The Bloomberg Consumer Comfort Index (COMFCOMF) rose to minus 23.5 for the period ended Aug. 4, its strongest reading since January 2008, a report today showed. The average number of workers applying for jobless benefits declined to 335,500 in the four weeks ended Aug. 3, the least since November 2007, according to Labor Department data.
All income groups save one saw confidence improve last week, with the biggest advances coming at the lower end of the pay scale, signaling the job market is thawing for a bigger share of households. The decline in worker dismissals may be a precursor to a pickup in hiring, which will sustain household spending and give the expansion a lift for the rest of 2013.
“The labor market is probably the most important determinant of the rise in confidence,” said Jim O’Sullivan, the Valhalla, New York-based chief U.S. economist at High Frequency Economics, and the second-best forecaster of claims over the past two years, according to data compiled by Bloomberg. “If the labor market keeps chugging along, as it seems likely to do, consumer spending should start to pick up in the second half.”
Compared with a week earlier, claims for U.S. unemployment insurance payments rose by 5,000 to 333,000 in the period ended Aug. 3, in line with the median forecast of 50 economists surveyed by Bloomberg which projected an increase to 335,000.
The level of firings is settling into a lower range following swings in July caused by annual auto plant shutdowns, showing employers want to hold on to workers to meet sales. The four-week average, a less volatile measure than the weekly readings, fell for the first time below levels seen since the economic slump began in December 2007.
“We’ll continue to see improvement,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the third-best claims forecaster over the past two years, according to data compiled by Bloomberg. “It’s more important to put the emphasis on the trend in claims, which remains favorable.”
No states were estimated, and there was nothing unusual in the data last week, a Labor Department spokesman said as the figures were released to the press.
Auto plants often shut down to retool for the new model year, causing claims data to become more volatile in July.
Growth in the automobile industry may help employment. Automakers, enjoying the best U.S. sales since 2007, disclosed plans this week to spend $434 million to boost capacity. Ford Motor Co. (F) said it’s looking to squeeze more vehicles out of every North American factory. Chrysler Group LLC yesterday said it will add capacity and almost 300 jobs at a Michigan engine plant.
Economists’ estimates in the Bloomberg survey ranged from claims of 315,000 to 370,000. The Labor Department revised the previous week’s figure from an initially reported 326,000.
Initial jobless claims reflect weekly firings and typically wane before job growth can accelerate.
Payrolls rose by 162,000 workers in July, the fewest in four months, following a 188,000 increase in June, data showed last week. The jobless rate dropped to a more than four-year low of 7.4 percent from 7.6 percent.
“Claims don’t have to fall very far to make a meaningful difference to payrolls,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Inc. in White Plains, New York, said in a research note. Every 10,000 decline in applications that is sustained over a month is roughly equivalent to a 25,000 increase in the pace of payroll gains, he said. “These data need to be watched.”
All three sub-gauges in the Bloomberg comfort index advanced last week. Consumers held the most optimistic views of the state of the economy since January 2008.
An index of Americans’ views of their personal finances was the second-highest since April 2008. The measure has been positive for 17 consecutive weeks. A gauge of the buying climate was at its highest point since early May as more consumers said the time was right to buy needed items.
Today’s figures showed confidence is recovering among less-advantaged socioeconomic groups. This marks “a key element for consumer sentiment to consolidate and expand on its recent gains,” said Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg.
The measure for households earning less than $15,000 improved for a third week. Confidence among households earning between $15,000 and $25,000 increased for a fourth week, reaching the highest point since March 2008.
The increases weren’t limited to those at the lower end of the pay scale as appreciating home values and stock prices near a record high keep brightening attitudes for the wealthiest consumers. For households earning more than $100,000, the index was positive for the 27th straight week.
Another report from the Labor Department this week showed job openings rose in June to the highest level in five years. It also showed fewer workers were fired in June than at any time in the previous five months, indicating demand is strong enough for companies to retain current staff.
Federal Reserve policy makers are watching the job market to determine when to begin scaling back the central bank’s $85 billion in monthly bond purchases. Officials have said they will continue the program until the labor market has improved “substantially.”
The economy will expand at a 2.5 percent annualized rate from July through December, up from a 1.4 percent gain in the first six months of 2013 and little changed from the pace projected last month, according to a Bloomberg survey of 59 economists conducted Aug. 2 to Aug. 6.
Economists in the survey also projected unemployment will drop to 7 percent by the middle of 2014, matching the timeline Fed Chairman Ben S. Bernanke laid out in predicting when the monthly bond purchases will end.
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