Applications for unemployment benefits fell more than forecast last week to the lowest level since April, a sign the weakness in the labor market is fading.
Jobless claims dropped by 24,000 to 398,000 in the week ended July 23, Labor Department figures showed today in Washington. The median estimate of economists in a Bloomberg News survey called for a drop to 415,000. Another report showed the number of contracts to buy previously owned homes unexpectedly rose in June.
Fewer firings are a first step toward gains in hiring that will help stem a slowdown in consumer spending, which accounts for about 70 percent of the economy. A report tomorrow may show household purchases last quarter grew at the slowest pace since the end of the recession in 2009 as the jobless rate climbed above 9 percent and payroll gains decelerated.
“The figures are encouraging, though we need to see a sustained decline in claims,” said James O’Sullivan, global chief economist at MF Global Inc. in New York. “The direction in claims invariably sends the right signal for growth in employment.”
Stocks rose as the reports helped offset concern about the impasse over the U.S. budget deficit. The Standard & Poor’s 500 Index climbed 0.8 percent to 1,315.37 at 12:01 p.m. in New York. Treasury securities also rose, sending the yield on the benchmark 10-year note down to 2.94 percent from 2.98 percent late yesterday.
Pending Home Sales
The number of contracts to purchase previously owned homes rose 2.4 percent in June as buyers tried to take advantage of lower prices and borrowing costs, figures from the National Association of Realtors also showed today. The increase in pending home resales followed an 8.2 percent May gain.
The rise in May didn’t translate into an improvement in sales as contracts were canceled due to stricter lending rules and low appraisals, the group said earlier this month.
“Cancellation rates are higher, which means this gain may not entirely filter through to existing-home sales,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “The economic background is still weak and uncertainty is high about the outlook, which will keep homebuyers on the sidelines.”
A drop in consumer confidence is one warning sign that a pickup in growth and spending will take time to develop. The Bloomberg Consumer Comfort Index fell to minus 46.8 in the period to July 24, the lowest since May, from minus 43.3 the prior week. Six percent of those surveyed said the economy was in good shape, the fewest since April 2009, when the U.S. was still in recession.
Seniors and the unemployed were among those showing the most negative readings, a sign that partisan wrangling over the nation’s budget deficit was jarring those likely to be affected by cuts in spending.
”The stuff in Washington is really weighing on people,” said Brian Jones, an economist at Societe Generale in New York. “The magnitude of the declines that we’ve gotten certainly bears watching. What’s more worrisome is that if consumer confidence has deteriorated that much, you can just imagine what business confidence has done.”
The median forecast for jobless claims was based on a Bloomberg survey of 44 economists. Estimates ranged from 400,000 to 440,000. The Labor Department revised the prior week’s figure up to 422,000 from a previously reported 418,000.
Claims can be volatile during this time of year as auto plants close to retool equipment for 2012 models. This year’s shutdowns have been difficult to predict, making adjusting the data for these seasonal variations more challenging, a Labor Department spokesman has said.
The four-week moving average, a less volatile measure than the weekly figures, fell to 413,750 last week from 422,250.
The number of people continuing to receive jobless benefits dropped by 17,000 in the week ended July 16 to 3.7 million.
The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
Those who’ve used up their traditional benefits and are now collecting emergency and extended payments increased by about 62,400 to 3.76 million in the week ended July 9.
The unemployment rate among people eligible for benefits decreased to 2.9 percent from 3 percent in the prior week, today’s report showed.
Twenty states and territories reported an increase in claims, while 33 reported a decrease. These data are reported with a one-week lag.
The economy’s growth slowed in the second quarter to a 1.8 percent annual rate, following a 1.9 percent pace in the first three months of 2011, according to the median forecast in a Bloomberg survey ahead of a Commerce Department report tomorrow. Consumer spending likely grew at a 0.8 percent rate, down from 2.2 percent in the first three months of the year.
Companies that are cutting jobs include Lockheed Martin Corp. The world’s largest defense contractor said on July 19 it’ll offer a voluntary separation plan to 6,500 employees in the U.S. The Bethesda, Maryland-based company will in mid-August evaluate the need for involuntary reductions.
The elevated jobless rate remains a concern for Federal Reserve policy makers, who are likely to keep interest rates close to zero for an extended period to stimulate growth.
“The most recent data attest to the continuing weakness of the labor market,” Fed Chairman Ben S. Bernanke said in a statement to lawmakers on July 13. For the economy as a whole, “the pace of the expansion so far this year has been modest.”