The labor market and housing strengthened, signaling the U.S. expansion may withstand the fiscal impasse.
“The economy is holding up just fine right now,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “Folks that are thinking there was going to be some cataclysmic economic shock to close out the year, I don’t think that’s right.”
Applications for unemployment-insurance payments fell by 12,000 to 350,000 in the week ended Dec. 22, bringing the average over the past month to the lowest level in more than four years, Labor Department figures showed today in Washington. Purchases of new houses rose 4.4 percent in November to a 377,000 annual pace, the highest level since April 2010, according to data from the Commerce Department. A third report showed consumer confidence slumped this month.
The claims data indicate companies are seeing enough demand to maintain headcounts, a necessary development before hiring picks up. Stocks rebounded in the final hour of trading, paring most of their earlier losses, amid optimism a budget deal will be reached. After the close, Senator Dick Durbin said Democratic and Republican leaders plan to meet with President Barack Obama at the White House tomorrow.
“If you could take the fiscal cliff off the table, if you could get the gorilla out of corner of the room, the platform for growth in 2013 is looking reasonably solid,” said John Ryding, chief economist of RDQ Economics in New York. “But how do you get the gorilla out of the room? That’s the problem.”
The Standard & Poor’s 500 Index ended little changed, dropping 0.1 percent to 1,418.1 at the close in New York. The gauge had tumbled as much as 1.3 percent earlier in the day after Senate Majority Leader Harry Reid said a resolution to the budget dispute appeared unlikely because Republicans wouldn’t cooperate.
Elsewhere today, Italian business confidence rose in December for a second month after a recession eased in the third quarter and the nation’s borrowing costs declined.
Confidence among U.S. consumers declined more than forecast in December as the budget debate in Washington soured Americans’ outlook for the economy.
The Conference Board’s sentiment index fell to 65.1 from a revised 71.5 reading the prior month, figures from the New York-based private research group showed. The gauge was projected to fall to 70, according to the Bloomberg survey median.
The group’s gauge of expectations for the next six months decreased to 66.5, a one-year low, from 80.9. The measure of present conditions climbed to 62.8 this month, the highest since August 2008, from 57.4 in November.
That is in line with the Bloomberg Consumer Comfort Index, a compilation of Americans’ views on the current state of economy, buying climate and personal finances. The measure eased to minus 32.1 in the week ended Dec. 23 from minus 31.9 the prior period, a drop that was within the margin of error of 3 percentage points. The gauge was less than a point from an April reading that was the highest since March 2008.
“The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions.”
The U.S. federal holiday on Dec. 24 prompted many state employment offices to close, making it more difficult to complete the jobless claims tally in time, a Labor Department spokesman said as the figures were released today. Fourteen states and territories provided their own estimates, which are usually “fairly accurate,” the spokesman said. The Labor Department estimated data for five states that didn’t provide any figures, he said.
The median estimate in a Bloomberg survey of 41 economists called for 360,000 claims. Projections ranged from 350,000 to 375,000. The prior week’s applications were revised to 362,000 from an initially reported 361,000.
The four-week moving average of claims, a less-volatile measure, dropped to 356,750, the lowest since March 2008.
Demand for new houses was up 15.3 percent from November 2011, today’s report showed. The median price rose 14.9 percent in November from the same month a year ago to $246,200.
Low mortgage rates and dwindling foreclosures are stabilizing prices and attracting buyers more than three years after a recession that was fueled by the industry’s collapse. Growing demand coupled with less inventory has given a boost to builders such as Toll Brothers Inc.
“The housing market’s in a steady recovery that’s likely to continue,” said Renaissance Macro’s Dutta. “We’re probably in the early stages of this positive feedback loop” of cheap credit, tight inventory and rising prices, he said.
Builder confidence has been improving as well. The National Association of Home Builders/Wells Fargo builder sentiment index increased in November to the highest level since April 2006.
Cheaper borrowing costs are helping drive housing demand. A 30-year, fixed-rate mortgage averaged 3.35 percent in the week that ends today, according to Freddie Mac. That is little changed from the 3.31 percent reached in late November that was the lowest in data going back to 1972.
Policy makers are striving to keep rates low to spur an even bigger recovery in housing. The Federal Reserve, which has kept its benchmark interest rate near zero since 2008, this month said it would hold it low “at least as long” as unemployment remains above 6.5 percent and inflation projections are for no more than 2.5 percent.
“Pent-up demand, rising home prices, low interest rates, and improving customer confidence motivated buyers to return to the housing market in fiscal year 2012,” Toll Brothers Chief Executive Officer Douglas Yearley said on a Dec. 4 earnings call. “As household formations accelerated and unsold home inventories dropped to record lows, the industry took further steps towards a sustained housing recovery.”