New claims for unemployment benefits unexpectedly fell last week, reaching the lowest level since April 2008 amid signs the economy picked up at the end of the year. Initial jobless claims decreased by 4,000 to a seasonally adjusted 364,000 in the week ended Dec. 17, the Labor Department said Thursday.
A separate report by the government showed the economy was a little weaker in the third quarter than earlier thought because of a downward adjustment to consumer spending. Other signs, though, point to stronger growth in the final months of 2011, with holiday shopping season sales looking solid. The index of leading economic indicators increased in November, according to the Conference Board Thursday, which said its leading index advanced 0.5% for a seventh straight gain. And consumer attitudes seemed a bit brighter at the end of December. The Thomson Reuters/University of Michigan consumer sentiment index rose to 69.9 from the 67.7 reading earlier this month and an end-November reading of 64.1.
Economists had forecast new jobless claims would rise by 14,000 to 380,000. The decline carried claims to the lowest since the week ending April 19, 2008, and marked the third drop in a row.
Weekly figures are volatile, particularly during the holidays, and economists prefer to look at the four-week moving average of new jobless claims. Last week, it dropped by 8,000 to 380,250.
The four-week average has remained below 400,000 for six consecutive weeks, a sign the economy is adding more jobs than it is shedding. Private employers continued hiring in November, according to the Labor Department’s monthly employment report. The report, a critical look at the U.S. labor market’s strength, also showed the jobless rate fell to its lowest since March 2009.
That said, the Federal Reserve is forecasting an unemployment rate ranging from 8.5% to 8.7% in 2012, with economic growth picking up yet remaining modest. Headwinds continue to sweep over the long recovery from the recession and the housing market bust. Stock-market prices have fallen amid Europe’s debt crisis and home values are down, making people feel less wealthy. Efforts in the U.S. to reduce the government budget deficit carry the risk of higher taxes. Consumers and their spending habits are a big driver of the economy.
Growth over the summer was less than thought, the Commerce Department said Thursday. Gross domestic product, the broadest measure of all the goods and services produced in an economy, grew at an inflation-adjusted annual rate of 1.8% in the July to September period. While still the strongest performance of the year, the Commerce Department’s third estimate of third-quarter GDP is lower than the previous reading of 2.0%.
The economy’s lower growth level was largely due to a downward revision of how much consumers spent, especially for services such as health care. The latest estimate showed personal consumption expenditure, which accounts for about two-thirds of spending in the economy, rose by 1.7% in the third quarter. That compares to a previous estimate of a 2.3% increase.
Lower consumer spending was only partly offset by an upward revision to business inventory investment. Company profits, which have remained very strong despite the slow recovery in the overall economy, continued to rise. Corporate profits — after tax and unadjusted for inventories or capital consumption — rose at a 2.1% annual rate from the previous quarter, the Commerce Department said. That was below the previous estimate of a 2.5% increase, but stronger than the 1.1% rise in the second quarter.
For the economy as a whole, the final three months of the year look stronger. Consumer spending has looked solid during the key holiday shopping season and exports have been surprisingly resilient. Many economists are forecasting fourth-quarter growth greater than 3.0%.
However, high U.S. unemployment rate, a burgeoning public debt, and Europe are among the clouds on the economic horizon. HSBC this week forecast a “full-blown recession for the euro zone…alongside an anemic recovery for the U.S. and a sluggish performance from many parts of the emerging world” in 2012. Economists at the bank predict 1.5% U.S. GDP growth for the full year. Other estimates are slightly more optimistic. Macroeconomic Advisers is forecasting 2.2% growth in the U.S. next year.
Jan Eberly, Treasury’s assistant secretary for economic policy, said in a blog the U.S. labor market suffers from a lack of demand in the economy. She wrote that extending the payroll tax cut and emergency unemployment benefits for American workers would offer “a boost to the broader economy at a time when the recovery is far from complete.”
The sickly housing sector is another burden for the economy. Despite several signs this week of improvement, the industry is saddled with too many unsold homes, hurting prices. The Federal Housing Finance Agency’s monthly home-price index Thursday showed U.S. home prices fell in October, after an increase in September. Aside from depressing households’ net worth, softness in prices is discouraging buying and selling of property.
The Federal Reserve is considering additional steps to help the economy, though some officials at the central bank worry that further monetary stimulus could spur inflation.
The GDP report Thursday showed that the underlying inflation rate–which excludes volatile moves in food and energy prices and is closely watched by the Fed–increased 2.1% from the previous quarter. That marked a slowdown from the 2.3% rate in the second quarter, but was slightly higher than the previous estimate of 2.0%.
The overall price index for personal consumption expenditures increased by 2.3% in the third quarter, the same as the previous estimate and down from 3.3% in the April to June period.
EasyForexNews Research Team