Jobless Claims Drop as U.S. Consumer Comfort Climbs: Economy

Fewer Americans applied for unemployment benefits last week, and consumer confidence approached a five-year high as the biggest part of the economy benefits from improving job and housing markets.

Jobless claims fell by 23,000 to 340,000 in the week ended May 18, Labor Department figures showed today in Washington. The weekly Bloomberg Consumer Comfort Index increased to minus 29.4 for the period ended May 19 from minus 30.2 the prior week.

Falling dismissals, rising home values and record stock prices are giving households the confidence to sustain spending, helping the economy weather federal budget cuts that are projected to curb the expansion. Federal Reserve Chairman Ben S. Bernanke yesterday signaled policy makers will not reduce record stimulus until gains in employment are sustained.

“Higher confidence, higher home prices and the improvement in the labor market bode well for the economic outlook in the second half of the year,” said Christopher Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who correctly forecast the decrease in jobless claims. “There’s no sign of a summer swoon in today’s data and that’s making us a little more confident.”

Other reports today showed sales of new houses climbed more than forecast in April and prices of previously owned properties jumped in March by the most on record.

Shares Fall

Stocks dropped as an unexpected contraction in China manufacturing raised concern the global economy was slowing and offset the improving U.S. data. The Standard & Poor’s 500 Index fell 0.3 percent to 1,650.51 at the close in New York. The yield on the benchmark 10-year Treasury note declined to 2.02 percent from 2.04 percent late yesterday.

China’s manufacturing is contracting in May for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter, according to figures from HSBC Holdings Plc and Markit Economics. A separate Markit index for euro-area services and factory output increased more than forecast.

The median forecast of 50 economists surveyed by Bloomberg called for U.S. jobless claims to drop to 345,000. Estimates ranged from 338,000 to 360,000. The Labor Department revised the previous week’s figure to 363,000 from an initially reported 360,000.

Today’s report corresponds to the week the Labor Department surveys businesses to calculate the May payroll data. The four-week average for this month’s survey period, at 339,500, was down from 362,000 in the comparable week in April, when the early Easter and spring school breaks made the data more volatile.

Claims, Payrolls

Initial jobless claims reflect weekly firings and tend to fall as job growth, which is measured by the monthly non-farm payrolls report, accelerates.

Ford Motor Co. said on May 22 that it’s taking on more workers as increased demand prompts the second-largest U.S. automaker to add capacity to build 200,000 more vehicles annually in North America.

Dearborn, Michigan-based Ford said on May 2 that it will hire a third crew at its Claycomo, Missouri, plant to boost F-150 output starting in the third quarter, after F-Series U.S. sales rose 19 percent through April.

“All of our products are performing quite strongly right now,” Jim Tetreault, Ford’s vice president of North America manufacturing, said in a telephone interview.

Cars aren’t the only pricey item that consumers are confident enough to buy.

Home Sales

Sales of new homes increased 2.3 percent to a three-month high of 454,000 at an annualized pace from a 444,000 rate in March that was faster than first estimated, the Commerce Department said. The median estimate of 76 economists surveyed by Bloomberg called for a gain to 425,000. The data included revisions back to January 2011.

Demand for new and previously owned homes is sustaining progress in residential construction that is poised to keep fueling the economic expansion. Builders such as PulteGroup Inc., home-improvement retailers like Lowe’s Cos. and lenders are benefiting from higher property values, lower mortgage rates and a pickup in household formation.

“We’re moving in the right direction,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who projected a sales pace of 440,000. “It’s pretty much consistent with an improvement we’ve seen in the labor market and income.”

Record Gain

Prices for existing houses rose 1.3 percent in March on a seasonally adjusted basis from February, the biggest gain in monthly data going back to 1991, the Federal Housing Finance Agency also reported today. The 7.2 percent increase in values over the 12 months to March was the biggest for a comparable period since May 2006.

Higher property values are helping consumers repair finances and gain confidence, which may underpin the spending that accounts for about 70 percent of the economy.

The Bloomberg comfort gauge has been hovering close to a five-year high of minus 28.9 reached at the end of April. It foreshadowed a similar gain in the Thomson Reuters/University of Michigan index of consumer sentiment, which reached an almost six-year high this month.

A measure of personal finances was positive for a sixth consecutive week, the longest stretch in more than five years.

The report showed those earning from $75,000 to $100,000 a year are particularly optimistic, with that income group turning positive for the first time since November 2007. Confidence for households with incomes of $100,000 or more a year has been positive in 28 of the past 29 weeks.

Homeowner Confidence

Homeowners registered their strongest reading since January 2008, reflecting healing in residential real estate.

Bernanke yesterday said the economy remains hampered by high unemployment and government spending cuts, and raising interest rates too soon would endanger the recovery.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said in testimony to the Joint Economic Committee of Congress. Monetary policy is providing “significant benefits,” he said.

He pointed to the historically high levels of unemployment and long-term joblessness, and to the shrinking of the workforce as signs the job market remains “weak.”

The job market must add 200,000 or more jobs per month for at least six months before it can be considered substantially improved, Chicago Federal Reserve Bank President Charles Evans said in a speech this week.

Employers added 165,000 to payrolls in April after a gain of 138,000 the prior month, according to Labor Department figures issued earlier this month. The jobless rate dropped to a four-year low of 7.5 percent.

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