Consumer Confidence Cools as U.S. Jobless Claims Rise

Confidence among U.S. consumers fell to a six-week low and claims for jobless benefits rose more than forecast, highlighting the risks to the economy posed by federal government budget cuts.

The Bloomberg Consumer Comfort Index dropped to minus 34.4 in the week ended March from minus 33.9 as Americans’ views of the economy deteriorated to the lowest point since early February. Applications for unemployment insurance benefits rose by 16,000 to 357,000 last week, the Labor Department said.

The figures represent a blemish for an economy that has shown signs of strengthening on the heels of a housing market rebound and a pickup in manufacturing. Federal Reserve policy makers are concerned the automatic reductions in government spending that began this month may impede the progress of the expansion after a fourth-quarter slowdown.

“There will be some impact from the sequester, and certainly the second quarter should look somewhat softer than the first quarter,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities in New York. At the same time, “it’s domestic growth that’s driving the economy -- it’s housing, it’s consumer spending, it’s business consumption.”

Stocks rose, sending the Standard & Poor’s 500 Index to an all-time high and wiping out losses from the financial crisis, as concern eased about Europe’s debt crisis. The S&P 500 climbed 0.4 percent to 1,569.19 at the close in New York.

Fourth Quarter

The economy in the U.S. grew at a faster pace than previously estimated in the fourth quarter, reflecting a bigger gain in business spending and a smaller trade gap, a report from the Commerce Department showed today. Gross domestic product rose at a 0.4 percent annual rate, up from a 0.1 percent prior estimate and following a 3.1 percent gain in the third quarter.

Elsewhere, German unemployment unexpectedly rose in March. The number of people out of work increased a seasonally adjusted 13,000 to 2.94 million, the Nuremberg-based Federal Labor Agency said today. The adjusted jobless rate held at 6.9 percent, close to a two-decade low of 6.8 percent.

In China, profits at industrial companies jumped 17.2 percent in the first two months of the year, extending a four-month streak of gains and bolstering a rebound in the world’s second-biggest economy.

Another report showed U.S. business activity expanded in March at a slower pace than forecast. The MNI Chicago Report’s barometer fell to 52.4 this month, the lowest level of the year, from 56.8 in February. A reading greater than 50 signals expansion. The median forecast of 48 economists surveyed by Bloomberg was 56.5.

Fed’s Bernanke

Recent figures show consumer spending, business investment and employment have perked up, developments cited by Fed Chairman Ben S. Bernanke during a news conference following the central bank’s March 19-20 policy meeting.

“The data since our January meeting have been generally consistent with our expectation that the fourth-quarter pause in the recovery would prove temporary and that moderate economic growth would resume,” Bernanke said.

Still, policy makers remain “concerned that restrictive fiscal policies may slow economic growth and job creation in coming months,” he said.

Macy’s Inc., the second-largest U.S. department-store chain, is among companies that project consumer spending, which accounts for about 70 percent of the economy, will hold up.

“We think the customer is OK, not particularly strong, not particularly weak, and we look at the momentum we have coming in to the year and we feel quite confident,” Karen Hoguet, chief financial officer at Macy’s Inc., said at a March 14 conference.

“That doesn’t mean that we’re not cognizant of all that’s going on in Washington and what’s going on with the payroll tax and every other factor, but we feel as if the environment will be supportive of us achieving the guidance that we’ve laid out,” she said.

Federal Budget

The Bloomberg measure of consumer comfort showed Americans may be unsettled by congressional bickering over the federal budget and the possible damage to economy from a slowdown in the pace of government spending, Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg, said in a statement.

The comfort index’s measure assessing Americans’ views on the current state of the economy fell to minus 61.1 from minus 59.5. The decline was the fourth straight, the longest such stretch since the four weeks ended Dec. 9.

Concerns about the job market may further restrain sentiment. The monthly average of jobless claims climbed from the lowest level in five years, today’s Labor Department report showed. The less-volatile figure increased to 343,000 last week from 340,750.

Continuing Claims

The number of people continuing to receive jobless benefits fell by 27,000 to 3.05 million in the week ended March 16, the fewest since June 2008.

Claims numbers may increase next month as Lockheed Martin Corp., Raytheon Co. and other companies that do business with the U.S. government prepare for leaner times. Under a 2011 budget agreement, federal agencies’ spending authority was cut by $85 billion this fiscal year in a process known as sequestration. The reductions are expected to total $1.2 trillion over the next decade.

Raytheon Co. this week said it would consolidate its businesses and shed about 200 employees.

The Defense Department has said that as many as 750,000 of its civilian workers may be forced to work fewer hours and take the equivalent of a 20 percent pay cut.

Claims may “rise a little bit as we get into April because we’re likely to see some job cuts related to the sequester,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit.

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