Labor Market Gains Help Brighten Americans’ Outlook

Applications for unemployment benefits in the U.S. unexpectedly declined to a six-week low and household sentiment reached the highest level this year as the world’s largest economy showed further signs of strengthening.

First-time jobless claims fell by 7,000 to 340,000 in the week ended March 2, pushing the monthly average to a five-year low, the Labor Department said today in Washington. The Bloomberg Consumer Comfort Index improved for a fifth week as the share of Americans with a positive view of the economy held at the highest level since early 2008.

The housing recovery and advancing stock prices are making it easier for households to tolerate higher payroll taxes and a logjam in Washington over the nation’s budget. A report tomorrow is projected to show employers took on more workers in February than a month earlier, helping sustain wage gains needed to propel the consumer spending that makes up about 70 percent of the economy.

“Businesses have, at least so far, shrugged off the effect of the tax increases and the spending cuts and they’re hiring,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the top forecaster of jobless claims, according to data compiled by Bloomberg. “Job growth is actually improved. That’s on top of record-high stock prices, surging housing values and even, in the last couple weeks, gas prices that have started to decline.”

Household Wealth

Gains in home prices contributed to a 1.8 percent increase in household wealth during the fourth quarter that’s helping give Americans the confidence to spend more, figures released by the Federal Reserve showed today.

Stocks rose, sending the Dow Jones Industrial Average to another record high. The Dow advanced 0.2 percent to 14,329.49 at the close in New York. Treasuries declined, pushing the yield on the 10-year note up to 1.99 percent from 1.94 percent late yesterday.

Another report showed the U.S. trade deficit widened more than forecast in January as demand for imported crude oil rebounded. The gap grew by 16.5 percent to $44.4 billion from $38.1 billion in December, which was the smallest deficit in three years, Commerce Department figures showed in Washington. The median forecast in a Bloomberg survey called for the deficit to increase to $42.6 billion.

German Manufacturing

While the U.S. economy is showing signs of improvement, Europe is struggling. German factory orders unexpectedly fell 1.9 percent in January as the sovereign debt crisis curbed demand in the euro area, according to data today from the Economy Ministry in Berlin.

The drop in U.S. jobless claims shows companies are easing up on dismissals as purchases of equipment climb and households maintain spending. The median forecast of 50 economists surveyed by Bloomberg called for an increase to 355,000.

The less-volatile four-week moving average of jobless claims fell by 7,000 to 348,750, the lowest since March 8, 2008. Unemployment applications reflect weekly firings and tend to fall as job growth, measured by the monthly non-farm payrolls report, accelerates.

Economists project employers added 163,000 workers in February after a 157,000 increase a month earlier, according to the median forecast in a Bloomberg survey before tomorrow’s Labor Department report.

United Technologies

United Technologies Corp. is among companies that have taken notice of how an improving job market, along with gains in housing, has boosted Americans’ spirits.

“I’m much more optimistic about the economy,” Gregory Hayes, chief financial officer at United Technologies, said Feb. 7 at a conference in New York. “We’re not a consumer products company, but the leading indicator that we do have is our U.S. residential HVAC business. Orders in that business were very strong coming out of the year.”

Hartford, Connecticut-based United Technologies’ businesses include Carrier air conditioners and Otis elevators.

Bloomberg’s Consumer Comfort Index improved to minus 32.4 in the week ended March 3 from minus 32.8 in the prior period, today’s figures showed.

A gauge of Americans’ views on the current state of the economy was little changed at minus 57 after rising to minus 56.9 in the prior period, which was its highest level since March 2008. Twenty-two percent had a positive view of the economy, matching readings last week and in November that were highest since March 2008.

Buying Climate

The buying-climate index improved to minus 40, the highest this year, from minus 41.3 the prior week. Thirty percent said it was a good time to buy things that they want or need, the highest level since December.

The comfort index’s measure of personal finances was little changed at minus 0.2 compared with minus 0.1 in the prior period.

Improved attitudes on the economy may reflect a rebound in the housing market. A pickup in demand is driving prices higher, and the S&P/Case-Shiller index of property values in 20 U.S. cities increased 6.8 percent in December from the same month in 2011, the biggest year-to-year gain since July 2006.

Americans’ sentiment has improved even as higher payroll taxes take a bigger bite out of workers’ paychecks. The levy that funds Social Security reverted to its 2010 level of 6.2 percent from 4.2 percent as of January. Someone earning $50,000 is taking home about $83 less a month as a result.

At the same time, gasoline prices have leveled off. The average price of a gallon of regular gasoline yesterday was $3.72, according to AAA, the largest U.S. motoring group. While prices are up from a low of $3.22 on Dec. 19, they’re down from $3.79 a gallon on Feb. 26 and have dropped eight days in a row.

Productivity, Costs

Also today, revised Labor Department figures showed the productivity of U.S. workers fell in the fourth quarter by the most in four years, while labor expenses accelerated as companies added workers and boosted hours.

The measure of employee output per hour fell at a 1.9 percent annual rate after a 3.1 percent third-quarter gain, the agency said in Washington. The median forecast in a Bloomberg survey called for a 1.6 percent drop in productivity after a previously reported 2 percent decrease. Expenses per worker rose at a 4.6 percent rate.

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