UPDATE: US Spending, Jobless Claims Point To Firm 4Q GDP
By Luca Di Leo, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- U.S. consumer spending bounced back in October, while
initial jobless claims last week fell to the lowest level in more than a year,
boding well for economic growth in the fourth quarter.
Consumer spending, a key growth engine for the U.S. economy, rose by a higher
than expected 0.7% in October, a government report showed Wednesday. That came
after a 0.6% decline in September, when spending was hurt by the end of the "
cash for clunkers" program, and means the last quarter of 2009 begins with some
positive momentum.
A separate report showed that initial claims for unemployment benefits
declined by 35,000 to 466,000 in the week ended Nov. 21. It was the lowest
claims figure since September 2008, and the first time initial claims have
fallen below the 500,000-mark since early January.
"The claims bode well for the unemployment picture going forward," said Abiel
Reinhart, economist at J.P. Morgan Chase & Co.
Spending by Americans rose last month as their incomes increased by 0.2% for
the second straight month and inflation remained low, an encouraging sign ahead
of the Thanksgiving and Christmas holidays shopping season. Personal income data
for the previous months was revised up.
In another encouraging sign for spending, consumer sentiment for November was
revised up by slightly more than expected, with Americans less pessimistic about
future finances.
However, in a sign the recovery remains sluggish, demand for long-lasting
goods unexpectedly fell in October, brought down by the defense sector, a
separate report showed.
The U.S. economy's rebound was softer than originally thought in the third
quarter, the government said Tuesday in a revision to its gross domestic product
estimate, which showed less consumer spending than initially estimated.
U.S. GDP--the broadest measure of output of goods and services--grew at a 2.8%
annual rate during the July to September period, less than the 3.5% rate
calculated by the Commerce Department a month ago.
Consumer spending, which accounts for 70% of U.S. economic output, increased
at a 2.9% annual rate during the third quarter--less than the 3.4% estimated
previously.
Economists currently expect slightly better economic growth in the fourth
quarter compared with the previous three months. One prominent forecaster,
Macroeconomic Advisers, predicts GDP growth of 3.1%.
Federal Reserve officials earlier this month raised their expectations for
growth this year and in 2010, but predicted the recovery will be so slow that
unemployment will remain high and inflation low until the end of next year.
Last week's initial jobless claims fell by more than economists expected.
Economists surveyed by Dow Jones Newswires had predicted a decrease of 10,000
claims.
The four-week moving average of new claims, which aims to smooth volatility in
the data, also fell, by 16,500 to 496,500 from the previous week's revised
average of 513,000. That is the lowest figure since Nov. 8, 2008.
"Although we are still at historically high levels of claims, we have seen a
notable decline and that is an encouraging sign showing that labor market
conditions are indeed improving," said Barclays Capital economist Michelle Meyer
in a Wednesday interview.
J. P. Morgan's Reinhart said the payroll decline in November, due to be
released Dec. 4, should show a moderation to around 100,000, following drops of
nearly double that level in recent months.
Manufacturers' orders for durable goods decreased 0.6% in October, contrary to
expectations they would rise by 0.5%, as demand for military goods demand
plunged.
While generally negative, the report had a few bright spots. September
durables were revised much higher, to show a 2.0% increase. Importantly, a big
moderation in the pace of inventory liquidation has positive implications for
fourth-quarter GDP.
Following Wednesday's data, economists at Morgan Stanley revised their fourth
quarter GDP forecast to +3.1% from +2.7%.
-By Luca Di Leo, Dow Jones Newswires; 202 862 6682; luca.dileo@dowjones.com
(Sarah N. Lynch and Jeff Bater contributed to this article.)
(END) Dow Jones Newswires
11-25-091117ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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