2nd UPDATE: US Spending, Jobless Claims Point To Firm 4Q GDP
Growth
(Updates with details from new home sales data and analysts' remarks and adds
background)
By Luca Di Leo and Jeff Bater
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- U.S. consumer spending and incomes rose in October
and initial jobless claims last week fell to the lowest level in more than a
year, figures that bode well for economic growth in the fourth quarter.
Consumer spending, a key growth engine for the U.S. economy, bounced back to
rise 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.
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.
Meanwhile, new-home sales unexpectedly climbed in October despite bad weather
and uncertainty about the future of a big tax credit for first-time buyers.
However, in a sign the recovery remains sluggish, demand for long-lasting
goods unexpectedly fell in October, brought down by the defense sector, and a
barometer of capital spending by businesses tumbled.
"Stronger-than-expected data on balance, with strength in jobless claims and
personal consumption outweighing weakness in durable goods orders" was how
economists at Goldman Sachs described the data flow.
Goldman now sees upside risks to its forecast that gross domestic product will
expand by an annualized 3% in the final three months of the year.
A revised government report Tuesday showed the U.S. economy's rebound in the
third quarter was softer than originally thought, with GDP growing at a 2.8%
annual rate instead of the 3.5% rate calculated a month ago.
The revision was mainly due to lower spending than originally estimated.
Consumer spending accounts for around 70% of U.S. economic output.
Last month spending by Americans rose as incomes increased by 0.2% for the
second straight month and inflation remained low, a positive sign ahead of the
Thanksgiving and Christmas holidays shopping season. Personal-income data for
the previous months was revised up.
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 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.
Abiel Reinhart, economist at J.P. Morgan, 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.
The housing sector report showed that sales of single-family homes increased
6.2% to a seasonally adjusted annual rate of 430,000. Economists surveyed by Dow
Jones Newswires estimated a 1.0% drop to a 398,000 annual rate.
Meanwhile, a key gauge of prices that is closely watched by the Fed to set
monetary policy reinforced the view that inflation wasn't a threat as the
economy recovers slowly. The core price index for personal consumption
expenditures, which excludes volatile food and energy, rose a monthly 0.2% in
October and by 1.4% year-on-year.
In the only negative development for the economy Wednesday, 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 growth forecast to 3.1% from 2.7%.
-By Luca Di Leo, Dow Jones Newswires; 202 862 6682; luca.dileo@dowjones.com
(Sarah N. Lynch contributed to this article.)
(END) Dow Jones Newswires
11-25-091400ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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