Drop in U.S. Jobless Claims Increases Confidence

Americans unexpectedly filed fewer claims for unemployment benefits last week, highlighting labor-market gains that are shoring up consumer confidence.

Jobless claims dropped by 5,000 to 305,000 in the week ended Sept. 21, a Labor Department report showed today in Washington. The monthly average was the lowest since 2007. The Bloomberg Consumer Comfort Index rose for the third straight week, another report showed.

Fewer dismissals show employers are confident sales will hold up and sustain growth in the world’s largest economy amid the budget battle in Washington. At the same time, higher borrowing costs threaten to curb corporate expansion as well as the household spending that accounts for 70 percent of gross domestic product.

“We definitely have seen a gentle downtrend in claims over the course of the year,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Unfortunately, the problem for the labor market for a long time has not really been the pace of layoffs, it’s been the slow pace of hiring.”

Last week’s figure for claims was the lowest since 2007, excluding the week ending Sept. 6, when a change in computer systems in California and Nevada distorted the figures.

Stocks rose, with the Standard & Poor’s 500 Index advancing 0.4 percent to 1,698.67 at the close in New York. The yield on the 10-year Treasury note climbed two basis points, or 0.02 percentage point, to 2.65 percent.

Consumer Confidence

Other data today confirmed the economy accelerated in the second quarter and showed fewer Americans signed contracts to buy previously owned homes in August.

GDP rose at a 2.5 percent annualized rate, unrevised from the previous estimate, after expanding 1.1 percent in the first quarter, the Commerce Department reported.

The index of pending home sales fell 1.6 percent as a recent rise in mortgage rates slows momentum in the housing market, according to figures from the National Association of Realtors.

In the U.K. today, a report showed economic growth accelerated in the second quarter as higher consumer spending helped blunt the impact of a drop in business investment.

Household expenditures rose 0.3 percent and disposable income increased 1.5 percent, the most in a year, the Office for National Statistics said in London. Income was boosted by bonus payments being deferred to take advantage of a tax cut. GDP advanced 0.7 percent in the quarter, matching a previous estimate.

Economists’ Estimates

Economists’ estimates for U.S. jobless claims in the Bloomberg survey ranged from 310,000 to 370,000 after the prior week’s previously reported 309,000.

The four-week average dropped to 308,000 from 315,000 in the prior week, today’s Labor Department report showed.

Wal-Mart Stores Inc. is among companies hiring after eliminating positions during the recession. The retailer is taking on 55,000 seasonal workers and adding another 70,000 part-time and full-time employees as it gears up for the holiday season and reverses workforce reductions that made it hard to keep store shelves stocked.

The U.S. workforce at Wal-Mart’s namesake and Sam’s Club warehouse chains fell by about 120,000 employees in the past five years, to about 1.3 million, according to regulatory filings. In that time, the company has added more than 500 U.S. stores through July 31.

Jobs Report

A Labor Department report next week will probably show that employers stepped up the pace of hiring. Payrolls increased by 175,000 this month, according to the median forecast in a Bloomberg survey, following a gain of 169,000 in August. The projected gain in employment would be the biggest in four months. The jobless rate is forecast to hold at 7.3 percent.

Saying they need to see more evidence of improvement in the economy and the labor market, Federal Reserve policy makers last week unexpectedly refrained from the reducing the pace of bond purchases intended to spur growth.

Gains in equities and home prices are boosting household wealth, laying the groundwork for a sustained increase in consumer spending.

A report yesterday showed household net worth climbed to $74.8 trillion in the second quarter, an increase of 1.8 percent from the previous three months, the Fed said.

The value of financial assets, including stocks and pension fund holdings, held by American households increased $674 billion in the second quarter. Household real-estate assets grew by $602.3 billion.

Household Finances

An increase in optimism about household finances helped spur a third straight gain in sentiment last week, according to the Bloomberg Consumer Comfort Index. The measure rose to minus 28.1, the highest since the period ended Aug. 11, from minus 29.4. The gauge of finances climbed to a seven-week high as the fewest respondents since late April viewed their budgets as “poor.”

The figures contrast with a report this week from the Conference Board, which showed its confidence index declined this month to the weakest level since May. At the same time, a gauge of present conditions improved.

Consumers are spending more on big-ticket items like cars. Motor vehicles sold in August at the fastest annualized rate since November 2007, according to data from Ward’s Automotive Group. The latest results at General Motors Co., Ford Motor Co., and Toyota Motor Corp. surpassed analysts’ estimates.

Holiday Shopping

Some Americans are cutting back elsewhere, a sign spending will be slow to accelerate heading into the holiday shopping season without faster growth in incomes and wages. U.S. chains are bracing for a tough holiday season, when sales are projected to rise 2.4 percent, the smallest gain since 2009, according to Chicago-based ShopperTrak.

“The general sentiment is somewhat more conservative,” Clay Creasey, chief financial officer at Toys R Us Inc., said on a Sept. 24 earnings call. “I have seen the numbers or surveys or whatever that talk about continued slowness in the toy category.”

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