US economy improves but recovery hurdles persist


Reuters

WASHINGTON – The number of Americans filing for new jobless benefits dropped to an almost four-year low last week, and factory activity in the mid-Atlantic expanded moderately, suggesting the economy carried some momentum into the new year.

But the pace of growth probably will slow. Analysts cautioned the drop in jobless claims likely was exaggerated by seasonal factors, and the slow pace of new orders in the factory report along with a drop in new home building and permits in December showed that obstacles to a strong recovery remain. Still, the employment and factory data added to a rash of stronger-than-expected economic signals, with growth in the fourth quarter forecast at an annual pace of about 3 percent – a step up from the prior quarter’s 1.8 percent rate.

“It’s not a robust picture, but it’s certainly an improving picture and one that you hope sets up some improvement over the longer term in consumption,” said Brian Levitt, an economist at OppenheimerFunds in New York.

Initial claims for state unemployment benefits fell 50,000 to a seasonally adjusted 352,000 last week, the lowest level since April 2008, the Labor Department said.

The week also marked the largest drop in applications since September 2005 and took claims within spitting distance of the 350,000 mark that economists say would signal strong job growth.

The claims data covered the period when surveys are conducted for the government’s January payrolls report, and claims dropped by 14,000 between the December and January survey periods.

But claims tend to be volatile around this time of year. The four-week moving average of claims, considered to be a better measure of labor market trends, fell 3,500 to 379,000 last week. It has held below 400,000 for 10 straight weeks.

“The initial indications for the jobs report in January are encouraging and suggest that we will see another 200,000-plus reading on private payrolls for the month,” said John Ryding, chief economist at RDQ Economics in New York.

Nonfarm payrolls increased 200,000 in December, with the unemployment rate dropping to a near three-year low of 8.5 percent.

Separately, the Philadelphia Federal Reserve Bank reported its business activity index rose to 7.3 from 6.8 in December. A reading above zero indicates expansion in the mid-Atlantic region’s manufacturing sector. But new orders and shipments slowed, taking some shine off the report. In addition, unfilled orders and delivery time fell, indicating factory activity in the region could slow in the months ahead.

The region’s employment picture improved, however, with factories adding more workers and extending hours for existing employees.

The data and strong demand at European bond auctions, which helped to ease some concerns about Europe’s debt crisis, propelled U.S. stocks higher. The Standard & Poor’s 500 index rose for a third straight day.

U.S. Treasury debt lost some of its safe-haven appeal, sending prices tumbling. The dollar fell to a two-week low against the euro.

Housing Mixed

Other data showed housing starts fell 4.1 percent to a seasonally adjusted annual rate of 657,000 units in December. The decline came from the volatile multi-family segment, which plunged 20.4 percent.

Starts of single family houses – which account for a larger share of new home construction – rose 4.4 percent, adding to views that the housing market decline has bottomed and home construction will contribute to economic growth this year.

Permits for future home construction eased slightly.

“There are too many distressed homes on the market in the largest home building areas for starts to rise sharply,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Still, a recovery is under way and means housing will be adding to growth going forward.”