Americans’ Sentiment Improves Along With Job Market: Economy

Americans’ confidence advanced last week to the highest level this year and jobless claims dropped more than forecast, pointing to a brighter outlook for an economy that stumbled at the end of 2012.

The Bloomberg Consumer Comfort Index rose to minus 32.8 in the week ended Feb. 24 from minus 33.4 as the share of Americans with a positive view of the world’s largest economy matched the highest since March 2008. Applications for jobless benefits fell 22,000 last week to 344,000, lower than the most-optimistic forecast in a Bloomberg survey, Labor Department figures showed.

An improving labor market, budding confidence and renewed strength in manufacturing underscore Federal Reserve Chairman Ben S. Bernanke’s forecast for a rebound in the economy, which barely grew in the fourth quarter, according to revised figures issued today. At the same time, looming cuts in government spending, rising gasoline prices and higher payroll taxes pose hurdles for the expansion.

“The economy actually seems to be holding up reasonably well even though it’s facing some real challenges,” said Lou Crandall, chief economist at Wrightston Icap LLC in Jersey City, New Jersey, and the second-ranked forecaster for jobless claims, according to data compiled by Bloomberg. “The labor market has been continuing to improve, not rapidly, but certainly more than you would have expected.”

Gross domestic product, the sum of all goods and services produced in the U.S., rose 0.1 percent at an annual rate in the final three months of last year, compared with a previously estimated 0.1 percent decrease, Commerce Department figures showed today in Washington.

Business Investment

The smallest trade deficit in almost three years helped overcome the biggest slump in military spending since the final years of the Vietnam War era. A bright spot in the report was business investment in new equipment, which climbed at an 11.3 percent annual rate, the fastest in more than a year. Consumer purchases rose at a 2.1 percent pace.

Stocks erased gains in the final half hour of trading after the Senate rejected a pair of partisan proposals to replace $85 billion in automatic government spending cuts scheduled to start tomorrow. The Standard & Poor’s 500 Index dropped 0.1 percent to 1,514.68 at the close in New York, after rising as much as 0.6 percent earlier.

Other figures showed business activity expanded in February at the fastest pace in almost a year as orders accelerated, a sign manufacturing is poised to grow. The MNI Chicago Report business barometer rose to 56.8, the highest level since March, after a reading of 55.6 in January. A number higher than 50 signals expansion. The median forecast of 51 economists surveyed by Bloomberg was 54.

Fed’s Bernanke

“The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery,” Bernanke said Feb. 26 in testimony to the Senate Banking Committee. “Available information suggests that economic growth has picked up again this year.”

In Europe, a report showed German unemployment unexpectedly fell in February amid signs the continent’s biggest economy is returning to growth after contracting at the end of 2012. The number of people out of work fell by a seasonally adjusted 3,000 to 2.92 million, the Nuremberg-based Federal Labor Agency said today.

In the U.S., rising residential real-estate values, combined with stock prices close to five-year highs, are driving a rebound in household wealth and helping to underpin the spending that accounts for about 70 percent of the economy.

The Bloomberg gauge assessing Americans’ views on the current state of the economy rose for a fifth straight week, to minus 56.9 from minus 58.3. Twenty-two percent had a positive view of the economy, matching a November reading that was the highest since March 2008.

Employment Gains

Improving job prospects may be brightening consumers’ moods. Employers hired a net 157,000 workers last month following revised gains of 196,000 and 247,000 in December and November that were bigger than initially estimated.

Today’s Labor Department report showed the number of people collecting unemployment insurance dropped to 3.07 million in the week ended Feb. 16, the lowest level since June 2008.

Economists’ initial claims estimates in the Bloomberg survey ranged from 345,000 to 387,000 after a previously reported 362,000 claims in the previous week. No states were estimated during the latest week, which included the Presidents’ Day holiday on Feb. 18, a Labor Department official said as the figures were released.

Labor, Housing

Stronger labor and housing markets may help improve the outlook for companies such as Mooresville, North Carolina-based Lowe’s Cos., the second-largest U.S. home-improvement retailer behind Home Depot Inc.

“The fundamentals underlying drivers of industry growth -- mainly job gains and stable to growing housing -- should support a strengthening growth trajectory for the industry,” Robert Niblock, chief executive officer of Lowe’s, said on a Feb. 25 earnings call.

At the same time, limited income growth and a reluctance among consumers to finance purchases are the “primary drivers influencing their decision” for delaying projects, he said.

The payroll tax this year was allowed to return to its 2010 level of 6.2 percent from 4.2 percent. An American who earns $50,000 is taking home about $83 less a month.

Government Spending

The looming government spending cuts known as sequestration, which will start tomorrow without resolution by lawmakers, are a hurdle for the economy and may result in more people filing claims for unemployment insurance.

Senators today turned back a Democratic proposal, 51-49, and a Republican plan, 38-62, with 60 votes required for each measure. No additional congressional action is planned before the start of the cuts, to be split between defense and non-defense spending. The across-the-board reductions will total $1.2 trillion over nine years, with $85 billion set to take effect in the remaining seven months of this fiscal year.

For all the concern in Washington about the cuts, investors are signaling the economy is strong enough to weather any reductions in spending, with home sales, consumer confidence and employment all rebounding.

The S&P 500 climbed 6.3 percent this year through last week, better than the 4.1 percent gain for the MSCI All Country World Index. Treasuries were becalmed, with yields on 10-year notes ending last week at 1.96 percent, little changed over the last month. The U.S. Dollar Index, which tracks the currency against six of America’s biggest trading partners, was at a five-month high.

(Updates with closing stocks in seventh paragraph.)
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