Oct. 31 (Bloomberg) -- The number of Americans filing applications for unemployment benefits last week remained elevated, indicating the partial federal shutdown this month weakened the world’s largest economy.
Jobless claims decreased by 10,000 to 340,000 in the week ended Oct. 26 as a backlog in California’s reporting cleared, the Labor Department said today in Washington. The reading compares with an average of about 330,000 a week in August, before a change in computer systems in the country’s most populous state started affecting the data.
“Looking through all the ups and downs, the job market has lost momentum,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, and the most accurate claims forecaster over the past two years, according to data compiled by Bloomberg. “Policy uncertainty over the budget means the economy will face an uphill battle over the next few months.”
An increase in firings, combined with another report showing consumer confidence is sinking in the aftermath of the fiscal gridlock that forced some federal agencies to close, threatens to slow household spending, which accounts for 70 percent of the economy. At the same time, a Chicago-area business barometer this month jumped by the most in 30 years, showing not all parts of the U.S. are bracing for the worst.
Stocks fell on speculation the Federal Reserve will cut stimulus in coming months and investors assessed corporate earnings. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,756.54 at the close in New York. It reached a record close of 1,771.95 on Oct. 29.
Globally, figures today showed a preliminary estimate of euro-area inflation in October was the slowest in almost four years and unemployment climbed to a record 12.2 percent the prior month.
In the U.S., consumer confidence last week eroded for a fifth straight time, reaching the lowest level in more than a year as pessimism about the economy chipped away at views of conditions closer to home. The Bloomberg Consumer Comfort Index fell in the period ended Oct. 27 to minus 37.6, the weakest reading since October 2012, from minus 36.1.
While the end of the 16-day federal government shutdown helped stabilize a measure of Americans’ outlook for the economy, households grew more pessimistic about their finances and the buying climate.
“The combination of fiscal follies in the nation’s capital, slower economic activity and a deceleration in hiring clearly has impacted consumer confidence,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “While sentiment is likely to rebound in coming weeks, it may not rise” to levels reached before the shutdown.
Another report today showed business activity in the Midwest jumped this month, according to the MNI Chicago Report business barometer. The index jumped to 65.9 in October, a more than two-year high, from 55.7 a month earlier. Readings above 50 signal expansion. The 10-point jump was the biggest since 1983.
“It’s always difficult to extrapolate nationally from any particular region, because they have their own idiosyncrasies,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York. “Do I really believe that it reflects the overall tone of manufacturing and economic activity? I don’t think so.”
Other regional measures confirm there are pockets of strength and weakness in manufacturing. The Federal Reserve Bank of New York’s general economic index fell to a five-month low in October, while activity gauged by the Federal Reserve Bank of Philadelphia expanded more than projected last month.
Economists monitor the Chicago index and other regional reports for an early reading on the national manufacturing outlook. The Institute for Supply Management’s measure, due tomorrow, is projected to be little changed at 55 from 56.2 in September, according to median forecast of economists surveyed by Bloomberg.
The number of jobless claims last week was in line with the median forecast of 49 economists surveyed by Bloomberg which projected a drop to 338,000. Estimates ranged from 320,000 to 370,000. The prior week’s claims were unrevised at 350,000.
California has worked through its backlog and its data today included no applications from prior weeks, a Labor Department spokesman said as the figures were released to the press.
Forty-eight states and territories reported a decrease in claims, while five reported an increase. These data are reported with a one-week lag. No states estimated their data last week, the Labor Department said.
Initial jobless claims reflect weekly firings and typically wane before job growth can accelerate. The government shutdown kept some 800,000 federal employees from working and delayed the Labor Department’s October payrolls report by a week, to Nov. 8.
Payrolls increased by about 100,000 this month compared with a 148,000 gain in September, according to a forecast by Moody’s Sweet. The government shutdown cost the economy about 50,000 jobs, he projected. The median estimate of economists surveyed by Bloomberg is 125,000.
Yesterday, the Fed said it needs more evidence of stronger growth before it can dial down its record $85 billion in monthly bond purchases, citing home sales in particular.
“The recovery in the housing sector slowed somewhat in recent months,” the Federal Open Market Committee said at the end of a two-day meeting in Washington. “Fiscal policy is restraining economic growth.”
The central bank left unchanged its statement that it probably will hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent.
While the economy continues to add jobs, the housing slowdown is rippling through the labor market. Home lenders in particular are feeling the effects of a decrease in refinancing. Bank of America Corp., the second-largest U.S. lender, is cutting jobs in its mortgage division. The financial services company, based in Charlotte, North Carolina, will dismiss about 3,000 people in the fourth quarter.
Wells Fargo & Co., the biggest U.S. mortgage lender, has cut more than 5,700 positions since midyear, and No. 2-ranked JPMorgan Chase & Co. has said it may dismiss 15,000.
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