Decrease in Claims Shows U.S. Labor Market Mending: Economy

Claims for jobless benefits dropped last week to the lowest level in a month as fewer temporary workers were dismissed following the holidays, showing the U.S. labor market is on the mend.

The number of applications for unemployment insurance payments declined by 15,000 to 330,000 in the period ended Jan. 4, the fewest since the end of November, the Labor Department reported today in Washington. Another report today showed consumers grew a bit more optimistic at the start of 2014.

Employers are gaining confidence and retaining staff as household spending improves and lawmakers in Washington show signs of working together to reach a budget deal. A report tomorrow is projected to show the world’s largest economy added more jobs in 2013 than at any point in the past eight years.

“The labor market is continuing to strengthen as we go into 2014,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who accurately forecast the drop in claims. “We should continue to see the unemployment rate go lower.”

Stocks were little changed as retailer shares slumped and investors awaited the jobs report for clues to whether the Federal Reserve will accelerate the pace of stimulus cuts. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,838.13 at the close in New York.

German Production

Other data showed Europe’s largest economy was also making progress. German industrial production rose in November for the first time in three months, according to figures from the Economy Ministry in Berlin.

The median forecast of 47 economists surveyed by Bloomberg projected U.S. jobless claims at 335,000. Estimates ranged from 305,000 to 355,000. The Labor Department revised the prior week’s figure to 345,000 from a previously reported 339,000.

The data can be volatile after the holidays as workers hired to help with the rush of shoppers are let go, a Labor Department spokesman said as the report was released to the press. The volatility can last for the entire month of January, the spokesman said.

So far, there have been fewer dismissals than projected. The Labor Department estimated firings would have risen by 56,586 last week. Instead, they climbed by 34,384. The smaller-than-forecast increase led to last week’s decline in the seasonally-adjusted figures.

Improving Confidence

One reason companies are not cutting back as much may be because households are gaining confidence. The Bloomberg Consumer Comfort Index advanced to minus 28.4 in the period ended Jan. 5 from minus 28.7. That puts the gauge above the 2013 average of minus 31.4. More people last week said that now is a good time to shop.

“Consumer sentiment has reversed its late-2013 slide, primarily due to improving labor-market conditions and more confidence in individual household finances,” said Joe Brusuelas, a senior economist for Bloomberg LP in New York. “We’ll likely see continued recovery in household sentiment throughout the year.”

Americans’ assessment of current economic conditions was the strongest since September, while views of the buying climate matched the second-highest level since May, today’s report showed. A gauge of personal finances was positive for the seventh straight week.

Recent headway in sentiment coincides with a pickup in spending. Retail sales excluding automobiles probably climbed 0.4 percent in December for a second month, based on the median estimate in a Bloomberg survey of economists ahead of the Jan. 14 release.

Auto Sales

Auto purchases increased 7.6 percent to 15.6 million in 2013, the industry’s best year since 2007, even as cold weather damped demand in December.

The four-week average of claims, which smoothes short-term volatility, dropped to 349,000 from 358,750.

Lawmakers in Washington are debating whether to extend federal emergency payments for the long-term unemployed. That aid expired Dec. 28, ending unemployment benefits to about 1.3 million job-seekers. A measure to extend the program for three months cleared a key procedural hurdle in the Senate on Jan. 6.

The federal program started in 2008 and at one point provided a total of as many as 99 weeks of benefits. At the end of 2013 the maximum was 73 weeks, including 26 weeks of standard state-funded benefits.

Extended Benefits

U.S. Senate Majority Leader Harry Reid said yesterday that he’s open to offsetting the cost of reviving long-term unemployment benefits if Republicans agree to keep the aid for a year, which would remove a point of contention. Some Republicans have said they could support a three-month extension as long as there are federal budget reductions to pay for it.

First-time claims for unemployment insurance reflect weekly firings and typically drop before job growth picks up. Employers added an average 188,550 jobs per month last year through November, beating 2012’s monthly tally of 182,750.

Yesterday, a report from the ADP Research Institute in Roseland, New Jersey, showed companies added 238,000 workers in December, the biggest increase since November 2012. A Labor Department report tomorrow may show total payrolls rose by 196,000 last month, according to a Bloomberg survey median. That would bring the total for the year to 2.27 million, the most since 2005.

Job gains and other signs of economic growth prompted the Federal Reserve to begin reducing its monthly bond purchases to $75 billion this month from $85 billion.

Fed’s View

At the central bank’s December meeting, some members of the Federal Open Market Committee “expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected,” meeting minutes showed yesterday.

The rosier outlook has some companies hiring. Drugstore operator CVS Caremark Corp., based in Woonsocket, Rhode Island, hired 1,000 nurse practitioners last year as it expanded its network of in-store clinics. Atlanta-based chemical manufacturer Zep Inc., plans to add sales staff as demand picks up.

“The biggest reason why people are feeling better about the economy and returning to showrooms is the progress that has been made on the jobs front,” General Motors Co. Vice President Kurt McNeil said on a January 3 earnings call. “That’s the key to releasing even more pent-up demand in 2014.”

Other employers continue look for ways to cut back. Macy’s Inc., the second-largest U.S. department-store company, yesterday said it will eliminate about 2,500 to cut costs. The company also said it will close five stores in Arizona, Kansas, Missouri, New York and Utah, and that its workforce will remain at about 175,000 employees as it adds staff in other parts of the company.

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