The Shadow
WASHINGTON (AP) – In a hopeful sign, the number of newly laid-off workers filing claims for unemployment benefits fell more than expected last week, dropping below 500,000 for the first time since January.
And consumer spending picked up in October as Americans’ incomes grew modestly, while new home sales hit their highest level in over a year – more encouraging signals for the budding economic recovery.
The number of people filing first-time claims for jobless benefits fell by 35,000 to 466,000, the Labor Department said Wednesday. That was the fewest since the week of Sept. 13, 2008. And it was far better than the 500,000 economists had expected.
Still, analysts say claims must drop to near 400,000 for several weeks to signal actual growth in employment. Economists expect 145,000 payroll job cuts for November, a slight improvement from the net loss of 190,000 jobs last month. But the economy must add 125,000 jobs a month just to keep the unemployment rate from rising.
Ohio had one of the largest drops in new claims, down by 2,486 because of fewer layoffs in the auto industry.
Some economists worry that the sharp improvements in jobless claims, new home sales and consumer spending, which powers 70 percent of the economy, will be temporary because of the still-sluggish recovery.
One such sign was that orders for costly manufactured goods fell unexpectedly last month. Much of October’s weakness came from a big drop for goods related to defense. Excluding those, orders for other types of manufactured goods rose slightly.
The jobless rate hit a 26-year high of 10.2 percent in October and many economists believe the recovery will remain so weak that the jobless rate will keep rising, possibly topping 10.5 percent by the middle of next summer.
Some analysts cautioned against reading too much into the sharp drop in unemployment claims. They noted that part of the improvement reflected large seasonal adjustment factors, which smooth out changes that normally occur at certain times of the year.
Excluding seasonal adjustments, claims rose. That’s normal at this time of year when a large number of construction workers face layoffs because of worsening weather conditions.
Federal Reserve policymakers worried at their November meeting that the unemployment rate could remain elevated for several years, according to minutes of the discussions released Tuesday.
New claims last week dropped below 500,000 for the first time since the first week in January. Weekly claims peaked at 674,000 in March and have generally been trending lower since then.
Meanwhile, the Commerce Department reported Wednesday that consumer spending rose a 0.7 percent last month, following 0.6 percent drop in September. It was the best showing since a big 1.3 percent jump in August when the government’s now-defunct Cash for Clunkers programs enticed people to buy cars.
Incomes, the fuel for future spending, rose 0.2 percent for the second straight month.
Consumers spent more on costly “durable” manufactured goods – such as cars and appliances – last month. Such spending rose 2.1 percent, compared with a 8.5 percent drop in September. They also boosted spending last month on “nondurables,” such as food and clothes, and on services.
Personal income from interest came to an annualized $1.23 trillion in October, up 0.5 percent from September. It means people who rely on interest from savings, such as money in certificates of deposit, earned a bit more in October after months of losses. Interest on dividend income dipped slightly to a pace of $525.5 billion, down 0.2 percent from September.
Wednesday’s figures seemed to blunt some fears that consumers could clam up, sending the country into a “double dip” recession, although there continues to be concern that consumer spending will slow early next year.
With spending outpacing income growth, Americans’ personal savings rate – savings as a percentage of after-tax income – dipped to 4.4 percent in October from 4.6 percent in September.
On the housing front, the Commerce Department reported that home sales rose 6.2 percent to a seasonally adjusted annual rate of 430,000 from an upwardly revised 405,000 in September. Economists expected a pace of 410,000.
Home shoppers were acting before lawmakers decided earlier this month to extend a tax credit for first-time buyers and expand it to some existing homeowners. The credit now covers contracts signed by April 30.
A 23 percent increase in the South drove the overall increase. Home sales fell about 5 percent in the West and Northeast, and 20 percent in the Midwest.
The median sales price of $212,200 was about even with last year’s figure, but up almost 1 percent from September’s level of $210,700.
But orders for costly manufactured goods actually dropped 0.6 percent last month, following a 2 percent gain in September. It marked the first decline since August.
Still, much of October’s weakness came from an 18.4 percent drop in orders for goods related to defense. Excluding those, orders for other types of manufactured goods rose 0.4 percent in October, following a 1.8 percent rise in September.
Orders for electrical equipment, commercial airplanes and parts, primary metals – including steel – and fabricated metals all rose last month. Orders for cars, machinery, computers and communications equipment fell.
The drop of 190,000 in continuing jobless claims marked the 10th consecutive decline, leaving it at 5.42 million, the lowest level since the week of Feb. 28.
The continuing claims figure does not include millions of people that have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government.
Nearly 4.2 million people were receiving extended benefits in the week ending Nov. 7, a drop of 18,254 from the previous week.
Congress added 14 to 20 weeks to the extended benefits program on Nov. 6, the fourth extension since the recession began and the longest total extension on record. That boosted the total time a person could collect unemployment to as much as 99 weeks in the hardest-hit states.
Recent reports indicate employers are continuing to lay off workers. Struggling Internet company AOL last week said it plans to cut up to 2,500 jobs, more than a third of its work force, once it is spun off from the media conglomerate Time Warner Inc. And Hartford, Conn.-based health insurer Aetna Inc. said it will cut 625 jobs, or nearly 2 percent of its staff, and will make similar job cuts in the first quarter of 2010 due to the lagging economy and the potential impact of health care reform.
