Bloomberg News

Labor-Market Gains Boost U.S. Consumer Confidence: Economy

February 10, 2012

(Updates with ECB in eighth, ninth paragraph.)

Feb. 9 (Bloomberg) -- Fewer Americans than forecast filed claims for jobless benefits last week and consumer confidence rose to the highest level in a year, pointing to gains in spending as job prospects brighten.

Applications for jobless benefits decreased 15,000 in the week ended Feb. 4 to 358,000, Labor Department figures showed today in Washington. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg News survey. The Bloomberg Consumer Comfort Index rose to minus 41.7 in the period to Feb. 5 from minus 44.8 the previous week.

The drop in firings comes a week after a report showed joblessness dropped to a three-year low in January, adding to evidence the labor market is recovering. More favorable views of the economy and finances mean consumers will continue to pick up the pace of spending.

“The labor market strength we saw in January was not a fluke,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut. “Consumers are responding to a labor market that’s getting better.”

Stocks rose, a day after the Standard & Poor’s 500 Index advanced to a seven-month high, as Greek political leaders struck a deal on measures needed to secure international rescue funds. The S&P 500 climbed 0.1 percent to 1,351.09 at 12:28 p.m. in New York.

Estimates for first-time claims ranged from 355,000 to 385,000 in the Bloomberg survey of 48 economists. The four-week moving average, a less-volatile measure, declined to 366,250, the lowest since April 26, 2008.

U.K. Manufacturing

Elsewhere today, U.K. manufacturing production jumped in December by five times as much as economists forecast and the trade deficit shrank to the smallest since 2003. Factory output increased 1 percent from the previous month, while the trade gap narrowed by more than half to 1.11 billion pounds ($1.7 billion).

The European Central Bank kept interest rates on hold today, while President Mario Draghi signaled the economy may be less dire.

“The economic outlook remains subject to high uncertainty and downside risks,” Draghi said at a press conference in Frankfurt today. Last month, he said the outlook was subject to “substantial” downside risks. The ECB left its benchmark interest rate at a record low of 1 percent.

China Inflation

China’s inflation rate picked up in January for the first time in six months, limiting room for monetary easing as Europe’s debt crisis damps exports and the property market cools. Prices rose 4.5 percent from a year earlier, the National Bureau of Statistics said on its website.

Initial jobless claims in the U.S. reflect weekly firings and tend to fall as job growth -- measured by the monthly non- farm payrolls report -- accelerates.

Employers added 603,000 workers in the last three months, while the unemployment rate fell by 0.6 percentage point to 8.3 percent. In January, payrolls jumped 243,000, the biggest gain since April.

The improving jobs picture may be leading to broad-based gain in sentiment as all three components of the Bloomberg weekly consumer comfort index picked up from the prior period. The measure of Americans’ views of the state of the economy rose to minus 76.6 last week from minus 79.1. The gauge of personal finances climbed to zero, the highest since July, from minus 4.5. An index of the buying climate increased to minus 48.4 from minus 50.8.

View of Finances

Forty-one percent of survey respondents said the economy is in “poor” shape, the fewest since March. Half of the respondents rated their own finances as “positive,” the most since September.

Sentiment among respondents ages 55 to 64 climbed to an almost four-year high, today’s report showed, while confidence among homeowners rose to the highest level since December 2010.

Higher stock prices and signs real estate is on the mend may be shoring up sentiment among both groups. The Dow Jones Industrial Average this week climbed to the highest level since May 2008, while sales of previously owned homes rose in December to an 11-month high.

Sysco Corp., the biggest North American distributor of food to restaurants, is among companies that may benefit from more upbeat attitudes.

“To a large extent, our performance in the second half of the year will be heavily influenced by how much the recent uptick in consumer confidence translates into increased consumer spending on meals away from home,” Chief Executive Officer Bill DeLaney said on a Feb. 6 conference call with analysts.

Obama on Economy

President Barack Obama said Feb. 3 in Arlington, Virginia, after the employment data were released that “the economy is growing stronger. The recovery is speeding up, and we’ve got to do everything in our power to keep it going.”

Obama challenged Congress to extend a 2 percentage-point payroll tax cut set to expire at the end of the month so that lawmakers “do not slow down the recovery.” Failure to prolong the cut could reduce economic growth by 0.4 percentage point in 2012 and contribute to increased unemployment and job loss, according to calculations by Mark Zandi, chief economist at Moody’s Analytics Inc.

The Federal Reserve is also concerned that unemployment is too high. January’s jobless rate understates weakness in the U.S. labor market, Fed Chairman Ben S. Bernanke said earlier this week.

“It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work,” Bernanke said Feb. 7 in response to questions at a hearing before the Senate Budget Committee. “There are also a lot of people who are either out of the labor force because they don’t think they can find work. We still have a long way to go before the labor market can be said to be operating normally.”

--With assistance from Tim Homan and Alex Tanzi in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Alexander Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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