Economy Brightens as Consumers Spend

JobsEconomic reports Thursday suggest employers are laying off fewer workers, businesses are ordering more computers and appliances, and consumers are spending more confidently.

Combined, the latest data confirm that the economy is improving, even though too few jobs are being created to lower the 9.8 percent unemployment rate.

The number of people seeking unemployment benefits edged down by 3,000 to a seasonally adjusted 420,000, the Labor Department said. That was the second drop in three weeks.

Weekly unemployment applications at around 425,000 signal modest job growth. But economists say the number would need to dip consistently to 375,000 or below to indicate a significant decline in unemployment.

Weekly applications peaked during the recession at 651,000 in March 2009.

The four-week average, a less volatile gauge, rose slightly to 426,000. The average had fallen for six straight weeks to the lowest point in more than two years.

Companies increased their orders for long-lasting manufactured products, excluding volatile transportation goods, by the sharpest amount in eight months, the Commerce Department said. Demand rose for computers, appliances and heavy machinery.

Total orders for durable goods dropped 1.3 percent. That decline reflected sagging demand for aircraft and autos.

But excluding transportation, orders surged 2.4 percent, the best showing since last March.

Personal spending rose modestly last month, giving the economy a lift before the holidays. Spending increased 0.4 percent, the fifth straight monthly increase.

Consumers’ incomes grew 0.3 percent last month, lifted by gains in stock portfolios. Wages and salaries barely budged. Hiring slowed in November.

Housing remains a drag on the economy. More people bought new homes in November, though far too few to signal better times are ahead for the battered housing industry. Sales rose 5.5 percent to a seasonally adjusted annual rate of 290,000 units, the government said. That’s less than half the rate that economists consider healthy. And the increase follows a dismal October pace that nearly matched the lowest level in 47 years.

The economy is expected to pick up next year as consumers spend more freely. Most Americans will have more cash to spend because of a cut in Social Security taxes that Congress approved this month. But economic growth probably won’t be fast enough to quickly reduce unemployment.

Many analysts are predicting that the economy will grow at a 3.5 percent to 4 percent annual pace next year.

That would be up from an expected 2.8 percent pace this year.

Economists generally say growth needs to reach 5 percent for a full year to bring down the unemployment rate by 1 percentage point. Many expect the rate to be near 9 percent by the end of next year.

The recent decline in the number of people seeking unemployment benefits has encouraged economists.

Applications have fallen by more than 20,000 in the past month. That should translate into more hiring in December than the previous month, according to most economists. The economy added a net total of only 39,000 jobs in November and the unemployment rate rose to 9.8 percent.

Weekly applications are a real-time snapshot of the job market. If they continue to move down, hiring is more likely to pick up. Applications reflect the level of layoffs. But can also indicate whether companies are willing to add workers.

Fewer people are receiving unemployment benefits. The total unemployment benefits rolls dropped by 103,000 to little more than 4 million in the week ending Dec. 11, the department said.

That doesn’t include millions of additional laid-off workers who are receiving emergency aid under extended unemployment benefits programs set up during the recession. About 4.7 million people are receiving extended benefits for up to 99 weeks.

All told, about 8.9 million people obtained unemployment benefits during the week of Dec. 4, according to the latest data available. That was about 150,000 fewer people than the previous week.
AP Economics Writers Jeannine Aversa and Martin Crutsinger contributed to this report.

Source: The Associated Press.