Growth Pickup Signaled by Data as Weather Warms: Economy

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Job seekers speak with representatives at the Recruit Military veteran job fair in San Diego, California, U.S., on Thursday, Feb. 27, 2014. Close

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Photographer: Sam Hodgson/Bloomberg

Job seekers speak with representatives at the Recruit Military veteran job fair in San Diego, California, U.S., on Thursday, Feb. 27, 2014.

Fewer Americans are seeking jobless benefits in March, manufacturing in some areas is rebounding and a gauge of the economy’s prospects climbed more than forecast in February, signs U.S. growth will pick up as temperatures warm.

There were 320,000 claims for unemployment payments filed in the week ended March 15 following 315,000 in the prior period, the lowest back-to-back readings since late November, according to data from the Labor Department issued today in Washington. Factories in the Federal Reserve Bank of Philadelphia region grew at a faster pace, while gains in building permits and easier credit conditions boosted the index of leading indicators, other figures showed.

“The numbers will look better once we get past the first quarter,” said Robert Dye, chief economist at Comerica Inc. in Dallas. “We expect a spring thaw after the brutal winter. Job growth will reestablish itself after the weather turns. There’ll be a virtuous economic cycle, and housing is going to be part of it.”

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The data came a day after the Fed decided to trim monthly bond purchases by another $10 billion beginning in April as the economy improves, and some policy makers boosted forecasts for how much the benchmark interest rate will rise next year. Other reports today showing that housing and consumer confidence are ebbing indicate parts of the economy will be slow to mend.

Stocks rose for the third time this week on optimism that stable jobless claims and pickups in the leading index and manufacturing mean the worst of the weather-related economic slowdown is over. The Standard & Poor’s 500 Index climbed 0.6 percent to 1,872.01 at the close in New York.

Survey Results

The median forecast of 51 economists surveyed by Bloomberg projected the number of jobless claims for last week, which corresponds to the period the Labor Department surveys employers and households to calculate the monthly jobs data, would increase to 322,000. Estimates ranged from 310,000 to 335,000.

The four-week average, a less volatile measure, declined to 327,000, the lowest level since late November, from 330,500 the week before.

A slowdown in dismissals may pave the way for employers to take on more workers once demand accelerates. Fed officials said yesterday in a statement that there is “sufficient underlying strength in the broader economy to support ongoing improvement in labor-market conditions,” even as activity slowed during the winter months.

“Claims remain extremely encouraging,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “They’re signaling that the net slowing in payroll gains in the last few months is weather related and temporary, and we’re due for some catch-up.”

Factory Rebound

Manufacturing is also showing signs of snapping back. The Philadelphia Fed’s factory index rose to 9 this month from minus 6.3 in February, the branch of the central bank reported today. Readings greater than zero signal growth in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

“What I find most heartening is the Philadelphia Fed survey,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “That’s pretty welcome news, because our manufacturing data has been kind of spotty.” Economists at Wells Fargo are the best forecasters of the leading economic indicator index in Bloomberg data going back two years.

A report from the Conference Board, a New York-based research group, showed the index of leading indicators, a gauge of the outlook for the next three to six months, climbed 0.5 percent in February, the biggest gain since November, after a 0.1 percent advance the prior month. The median forecast of 49 economists surveyed by Bloomberg called for a 0.2 percent rise.

LEI Breakdown

Five of the 10 indicators in the leading index contributed to the increase, led by a jump in building permits, an improvement in the group’s credit measure and the spread between short- and long-term interest rates. Weaker consumer confidence limited the gain.

Chief executive officers have become more optimistic about hiring, sales and capital expenditures as demand picks up, based on the Business Roundtable’s first quarter 2014 survey results released this week.

“There is going to be a tailwind from the housing market as well the core GDP growth,” Francis Blake, Atlanta-based retailer Home Depot Inc. (HD)’s chief executive officer said in a March 19 call. “Weather hasn’t been our friend at the start of the year,” Blake said, yet “we still feel good about our planning assumptions for the year.”

Fed officials yesterday decided to trim monthly bond purchases (ETSLTOTL) to $55 billion from $65 billion starting next month, taking another step toward unwinding the unprecedented stimulus that was put in place to help spur economic growth.

Rate Forecasts

The central bankers predicted their target interest rate, now close to zero, will be 1 percent at the end of 2015 and 2.25 percent a year later, higher than previously forecast.

The Fed also stopped linking the benchmark interest rate with a specific level of unemployment, saying its assessment of progress toward goals of maximum employment and 2 percent inflation will take into account a wide range of information, including labor-market conditions.

News today on housing and consumer sentiment was less upbeat. Purchases of previously owned homes declined 0.4 percent in February to a 4.6 million annualized rate, the lowest since July 2012, according to figures from the National Association of Realtors.

The slowdown in sales since the middle of last year reflects a pickup in borrowing costs, declining affordability and, more recently, bad weather. Faster job growth that generates bigger income gains is needed to spur demand and allow housing to contribute more to the economy.

Housing ‘Headwinds’

“There are some headwinds out there,” said Comerica’s Dye, who correctly forecast the pace of sales. “Housing affordability has come down a bit as mortgage rates have come up from recent historic lows. The weather was a factor and we expect that to be turning around shortly.”

Americans were the most pessimistic on the outlook for the economy in March than at any time in four months, a sign the effects of harsh winter weather are still rippling through, data from the Bloomberg Consumer Comfort Index showed. The percentage of negative responses about the future exceeded positive views by 12 points this month, the most since November.

The weekly measure declined to minus 29 from minus 27.6 the prior period, the first drop in six weeks.

Food, Fuel

A lack of rain in the western U.S. combined with frigid temperatures in the East have triggered a jump in food and fuel bills that will probably cause lower-income households to struggle to make ends meet. Nonetheless, General Mills Inc. (GIS) is among companies projecting further gains in employment and incomes will lead to improving sales in coming months.

“In the short-term, we’re coming off a very severe winter and so we are already seeing our categories strengthen a little bit as we get through that,” Ken Powell, chairman and chief executive officer of the maker of Yoplait yogurt and Cheerios cereal, said in a March 19 earnings call. “As incomes continue to grow and consumers gain confidence, that will be a positive sign for our category.”

To contact the reporters on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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