Firing Decline Helps Boost Confidence in U.S.: EconomyLorraine Woellert and Jeanna Smialek
Applications for unemployment benefits declined last week and Americans’ views of the economy were the brightest since early 2008 on the heels of a housing market recovery and higher stock prices.
Jobless claims fell 11,000 in the week ended June 1 to 346,000, the Labor Department said today in Washington. Sentiment about the state of the economy improved to the best level since January 2008, helping keep the Bloomberg Consumer Comfort Index at minus 29.7, close to a five-year high.
Waning dismissals, rising property values and higher stock prices this year will help underpin household spending and allow the economy to withstand budget cuts that are slowing growth this quarter. At the same time, the expansion would benefit more from bigger job and wage gains, and figures tomorrow are projected to show limited improvement in the pace of hiring.
“There’s some modest hiring taking place,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, who projected 345,000 claims for last week. “Confidence is pointing to a fairly robust rebound in consumer activity.”
Stocks rose, with the Standard & Poor’s 500 Index erasing earlier losses to snap a two-day losing streak. The S&P 500 climbed 0.9 percent to 1,622.56 at the close in New York.
Equities fell as much as 0.7 percent earlier in the day after European Central Bank President Mario Draghi said the euro-area economy will return to growth by the end of the year, handing policy makers a reason to hold back fresh stimulus. He spoke after the ECB’s Governing Council left is main refinancing rate at 0.5 percent after reducing it by a quarter point last month.
Ebbing overseas demand for American-made goods also helps explain why U.S. companies are limiting payroll growth. A report today showed German factory orders fell more in April than economists projected. Bookings, adjusted for seasonal swings and inflation, decreased 2.3 percent, the Economy Ministry in Berlin said.
Employers in the U.S. added 165,000 jobs for a second month in May, according to the median forecast in a Bloomberg survey before tomorrow’s Labor Department report. Jobless claims, which track weekly firings, need to fall before job growth, measured by the monthly payrolls report, can accelerate.
Household wealth in the U.S. jumped to a record in the first quarter, helping to explain gains in consumer confidence, another report showed today.
Net worth for households and non-profit groups increased by $3 trillion from January through March, or 4.5 percent from the previous three months, to $70.3 trillion, according to data from the Federal Reserve.
Rebounds in housing and stocks have helped upper-income Americans recover much of the wealth lost during the recession. The S&P/Case-Shiller index of property values in 20 cities increased 10.9 percent in the year to March, the biggest 12-month gain since April 2006, a report showed last month.
Hooker Furniture Corp. is among companies benefiting from the strength in housing and a more confident consumer. The Martinsville, Virginia-based maker of residential furniture is also adding to staff to meet demand.
“We are still hiring,” Michael Delgatti, president of Hooker Furniture’s upholstery division, said on a June 5 conference call. “Our order rate continues to outpace our manufacturing ramp-up even though we have increased capacity.”
Two of the Bloomberg comfort index’s components improved last week. The gauge of consumers’ current views about the economy climbed to minus 53 from minus 54.7, while the measure of personal finances rose to 4.6, its best reading since April 2012, from 2.8.
“People are more certain about their own employment and wage prospects,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Rising equity and home prices are certainly having an interesting effect on upper-income Americans, who seem to have captured a portion of the recovery in overall national wealth.”
Sentiment for households earning between $75,000 and $100,000 annually reached a five-year high, eclipsing confidence among the highest-income earners, the Bloomberg consumer comfort survey showed. The gains are helping sustain spending.
Household purchases climbed at a 3.4 percent annualized rate in the first quarter, almost twice as fast as the prior quarter’s 1.8 percent gain. That helped the economy strengthen, with gross domestic product rising at a 2.4 percent pace compared with a 0.4 percent advance in the last three months of 2012, a Commerce Department report showed last week.
The median forecast of 47 economists surveyed by Bloomberg called for jobless claims to drop to 345,000 from an initially reported 354,000 a week earlier. Economists’ estimates in the Bloomberg survey ranged from claims of 335,000 to 360,000.
Some companies are reducing headcount in response to weaker sales. Game developer Zynga Inc. will cut 520 jobs, 18 percent of its staff, and close offices in New York, Los Angeles and Dallas amid disappointing results. The cuts will save as much as $80 million, the San Francisco-based company said this week.
Other employers, including vehicle and equipment manufacturer Oshkosh Corp., are trimming headcounts as budget cuts take hold. The Oshkosh, Wisconsin, company anticipates declining defense contracts over the next few years, Chief Financial Officer David Sagehorn said, and will lay off workers this summer.
“It’s no secret that defense spending is heading lower, and sequestration has raised numerous questions and eyebrows across the U.S. in terms of the impact that that will have,” Sagehorn said at a May 29 conference. “Going forward, obviously, we will look at our footprint in the defense segment, and one of the big areas of focus for us is managing that overall cost structure as our sales in that segment are expected to decline over the next several years.”