US jobless claims at 3½-year low but third-quarter growth revised down
THE NUMBER of Americans filing new claims for jobless benefits hit a 3½-year low last week, bolstering views the economy was gaining momentum, even though third-quarter growth was revised down.
Other data yesterday underscored the firming tone in the economy, with consumer sentiment scaling a six-month high in December and a barometer of future activity rising for a seventh straight month in November.
While the economy is wrapping up 2011 with a spring in its step, bickering over budget policy in Washington and the debt crisis in Europe have cast a cloud over its prospects next year.
A payroll tax cut and benefits for the long-term unemployed, both of which are due to expire at year end, have become tangled in partisan politics and it is unclear whether they will be renewed.
The claims data, which covered the survey period for the December non-farm payrolls report, helped to take the sting out of a separate report showing the economy expanded at only a 1.8 per cent annual rate in the third quarter.
Growth, which had previously been reported to have expanded at a 2 per cent pace, was held back by a sharp drop in healthcare spending, the commerce department said. A month ago, it had said healthcare spending had risen.
However, spending on long-lasting goods was stronger than previously estimated, indicating consumer demand remained healthy.
Prospects for spending were boosted by the rise in consumer confidence. The Thomson Reuters/University of Michigan’s sentiment index rose to 69.9 from 64.1 in November as measures of both current conditions and future expectations increased.
Even as much of the rest of the world is slowing down, with a mild recession forecast for Europe next year, the US economy appears resilient.
The labour market is improving, households are spending, home building is picking up and factory output is expanding, putting the economy on course for at least a 3 per cent growth in the fourth quarter. That would be the fastest pace in 18 months.
An index from the private sector Conference Board that seeks to predict the strength of future economic activity rose for a seventh straight month in November, suggesting the economy could pick up even more speed by spring.
While claims for first-time unemployment benefits tend to be volatile this time of the year, they have dropped for three consecutive weeks. A four-week moving average, a better measure of trends, is now at its lowest level since June 2008.
“One unexpectedly low number can easily be a fluke, two are interesting, three are telling us something real is happening in the labour market,” said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York.
“The drop in claims in recent weeks, if sustained, is consistent with private payrolls growth ramping up to about 200,000 per month.”
Non-farm employment growth has grown by an average of 131,636 jobs a month so far this year.
Last quarter’s growth was still a step-up from the April-June period’s 1.3 per cent pace. Part of the pick-up in output reflected a reversal of factors that held back growth earlier in the year.
The drop in healthcare consumption saw consumer spending growth lowered to a 1.7 per cent rate from 2.3 per cent. Consumer spending accounts for about 70 per cent of economic activity.
Business inventories fell, but not as sharply as previously reported. Restocking by businesses is expected to support growth in the fourth quarter, helping to keep factories busy.
In addition, businesses showed little signs of cutting back on spending and profits continued to grow at a healthy clip.
Excluding inventories, the economy grew at a 3.2 per cent rate, revised down from a 3.6 per cent pace. – (Reuters)