Jobless claims, GDP data ease economic fears

WASHINGTON Thu Sep 29, 2011 7:54pm EDT

A worker installs parts onto the dashboard for the new Chevrolet Cruze car as it moves along the assembly line at the General Motors Cruze assembly plant in Lordstown, Ohio July 22, 2011. REUTERS/Aaron Josefczyk

A worker installs parts onto the dashboard for the new Chevrolet Cruze car as it moves along the assembly line at the General Motors Cruze assembly plant in Lordstown, Ohio July 22, 2011.

Credit: Reuters/Aaron Josefczyk

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WASHINGTON (Reuters) - The chances of the U.S. economy averting a new recession got a boost on Thursday with claims for jobless benefits falling to a five-month low last week and growth a touch stronger in the second quarter than previously estimated.

Initial claims for state unemployment benefits fell 37,000 to 391,000, the Labor Department said, well below economists' expectations for 420,000. But the department cautioned that the way it adjusts the data for seasonal fluctuations may have overstated the strength.

Separately, the Commerce Department said U.S. gross domestic product grew at an annual rate of 1.3 percent in the second quarter, up from the previously reported 1.0 percent. Consumer spending and export growth both were stronger than earlier estimated.

"When you connect these data points together, they indicate a very tepid recovery. We are still experiencing positive growth, which is better than we feared a few months ago," said Paul Ballew, chief economist at Nationwide in Columbus, Ohio.

The cautious optimism generated by the data was tempered somewhat by a report showing the housing sector remained on the rocks last month.

Investors on Wall Street welcomed the claims and growth data and increasing confidence in Europe's response to its debt crisis. U.S. stocks ended mostly higher, with the Standard & Poor's 500 index gaining 0.81 percent.

Prices for the 30-year U.S. Treasury bond rose, while the dollar rose marginally against a basket of other major currencies.

FED READY TO ACT AGAIN

Haggling in Washington over budget policy and the deepening debt crisis in Europe had eroded confidence, leaving the U.S. economy on the brink of a new recession.

A survey of U.S. chief executives released by the Business Roundtable on Thursday showed their views of the economy's prospects deteriorated in the third quarter, with the number who expect to cut jobs roughly doubling.

Faced with a weak recovery, the Federal Reserve last week announced a new measure designed to push long-term borrowing costs lower by shifting assets on its balance sheet to longer maturities.

In a speech on Wednesday, Fed Chairman Ben Bernanke said the U.S. central bank might need to ease monetary policy further if inflation or inflation expectations fell significantly.

The drop in initial claims for unemployment benefits took them below 400,000 for the first time since early August. The department, however, said the weakness in the labor market in recent years may have led the model it uses to seasonally adjust the data to overstate last week's drop.

The decline also reflected the fading impact of Hurricane Irene, which had caused claims to spike in the September 10 week.

Still, the total number of unemployed continuing to claim benefits after an initial week of aid fell to 3.73 million in the week ended September 17 from 3.75 million a week earlier.

The September 17 week corresponds with the survey period for the department's household employment measure, which is used to construct the national unemployment rate.

RECESSION FEARS EASE

In August, the jobless rate remained stuck at 9.1 percent, with a separate survey of employers showing hiring ground to a halt, which ratcheted up recession fears.

Those worries are beginning to fade. Factory output continues to expand and businesses have maintained their appetite for spending on capital goods.

"Indications are that the third quarter is doing better than previously thought. We now anticipate third-quarter real GDP growth of just above 2 percent," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Housing, however, remains a weak spot.

The National Association of Realtors said its index of pending home sales, based on contracts signed in August, fell 1.2 percent to 88.6, its lowest since April.

NAR said contract signings, which usually precede actual closings by a month or two, were held back by tight credit and, in the Northeast, by Hurricane Irene.

With millions of Americans locked into mortgages worth more than their homes, historically low interest rates are failing to lift sales. Freddie Mac said on Thursday that the average rate on U.S. 30-year fixed rate mortgages fell to a record low 4.01 percent this week.

(Additional reporting by Jason Lange; Editing by Andrea Ricci and James Dalgleish)

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Comments (12)
USMCPatriot wrote:
When is not quite as bad news a good thing? This would seem a bit like “last night your house burned, but after the sun came up it revealed one of your bathrooms is still intact.”

Sep 29, 2011 10:06am EDT  --  Report as abuse
USAPragmatist wrote:
@USMCPatriot, so are you one of the righties that wants the economy to tank? Any improvement in the economy is good news, well unless of course your primary goal is to make sure Obama is a one-term POTUS, like the de-facto leader of the GOP, Mitch McConnell has said.

Also, “After-tax corporate profits rose at a 4.3 percent rate, the largest increase in a year.”, seems like they doing ok to me.

Sep 29, 2011 11:18am EDT  --  Report as abuse
Jonathan_ wrote:
@USAPragmatist Where in that entire post did you see that the right wants the economy to tank? Correlation does not imply causation – Obama is tanking the economy, hence he should be a one term president.
Ever hear about the recession of 1921? http://en.wikipedia.org/wiki/Recession_of_1921
It lasted a year and a half. We came out of that into what is now called the “Roaring 20′s.” What did the government do about that recession? Almost nothing. Wages plummeted, prices dropped, and the market recovered.
Now let’s discuss the Great Depression of the 1930s: That lasted over a decade. Laws were put in place for a minimum wage that kept prices artificially high, and cash-strapped businesses could not afford to hire workers. Production plummets, prices stay high, wages stay the same, 25% unemployment.
The right wing wants the government to stay out of the market (except for obvious criminal corruption and fraud). The market has an incentive to make sure people have jobs, and have enough money to purchase consumer goods.
When the government steps in, picking winners and losers, that’s when uncertainty steps in; not when prices drop. If we had let AIG and the lot go bankrupt a few years ago, they would have restructured, been bought out, and life would go on. The only ones hurt would have been the billionaire owners.
So in closing, I don’t know enough to make a lecture on economics. I just know that common sense should apply.

Sep 29, 2011 11:46am EDT  --  Report as abuse
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