Economy gaining momentum, housing shows a pulse

WASHINGTON Thu Dec 29, 2011 6:45pm EST

A man waits to speak with a job recruiter during a job fair in New York October 24, 2011.  REUTERS/Shannon Stapleton

A man waits to speak with a job recruiter during a job fair in New York October 24, 2011.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - New U.S. claims for jobless benefits rose last week but the underlying trend pointed to an improving labor market, while regional factory data showed the economy gaining momentum as the year ended.

The growth picture was brightened by other data on Thursday showing pending sales of previously owned homes jumped to a 1-1/2 year high in November, adding to signs of a tentative recovery in the housing market.

Indications the economy was wrapping up the year on a much firmer footing than had been previously anticipated leaves it better positioned to deal with headwinds from the festering debt crisis in Europe and fiscal tightening at home.

"The data have maintained their stronger tone and that suggests the economy is on an upswing towards the end of 2011, but they are not pointing to robust growth in 2012," said Conrad DeQuadros, senior economist at RDQ Economics in New York.

Initial claims for state unemployment benefits rose 15,000 to a seasonally adjusted 381,000, the Labor Department said, above economists' expectations for 375,000.

But the four-week moving average, a better measure of labor market trends, dropped to a 3-1/2 year low.

A separate report showed the Institute for Supply Management-Chicago business barometer was little changed at 62.5 this month from 62.6 in November.

Economists had expected this measure of factory activity in the Midwest region, to fall to 61 in December. A reading above 50 indicates expansion in the region's manufacturing.

"It is possible that supply disruptions within the auto industry had a minor impact on the production component of the survey given the region's significant exposure to the sector," said Brett Ryan, an economist at Deutsche Bank Securities in New York.

"However, today's data highlight continued growth in manufacturing."

With new orders still strong; backlog orders, employment and supplier deliveries rising, the ISM-Chicago survey suggested a modest pickup in national factory activity from November.

The Institute for Supply Management will release its December survey of national manufacturing on Tuesday.

Other data showed the National Association of Realtors' Pending Home Sales Index, based on contracts signed in November, increased 7.3 percent to 100.1, the highest level since April 2010. Economists had expected only a 2 percent rise.

Pending sales lead existing home sales by a month or two.

Recent data on home sales and construction have been fairly upbeat, suggesting an improvement in a sector that has been the economy's weakest link, but prices continue to trend lower.

The economic data offset concerns about Europe and encouraged investors to buy U.S. stocks. Prices for U.S. Treasury debt rose, while the dollar was little changed against a basket of currencies.

LABOR MARKET HEALING

While much of the global economy is slowing and the troubles in Europe are expected to push the region into a mild recession in 2012, activity in the United States has held up relatively well.

Fourth-quarter growth is seen topping a 3 percent annual pace, rising from the July-September period's 1.8 percent rate.

"Unless things take a turn for the worse and we were to have a disorderly outcome in Europe, we wouldn't expect there to be a big impact on the U.S. given that U.S. exports to Europe are quite small as a share of the economy," said RDQ Economics' DeQuadros.

The euro zone crisis has seen banks tighten lending to major financial participants in recent months.

While the Federal Reserve's survey of senior credit officers did not mention Europe directly, it indicated a "broad but moderate tightening of credit terms applicable to important classes of counterparties over the past three months.

In the claims report, the improving labor market tone was captured by the four-week average, which held below the 400,000 mark usually associated with improving labor market conditions for seven straight weeks.

That left some economists anticipating nonfarm employment to increase by at least 150,000 in December, which would be a step-up from November's 120,000 gain.

The better tone should feed into consumer spending, which slowed significantly in November, and support economic growth.

Firming employment, marked by a drop in the jobless rate to a 2-1/2 year low of 8.6 percent in November, is helping to buoy consumer confidence.

"The jobs market is the backbone for consumers ... continued progress in the months ahead will be key to sustained improvement in the collective mood of consumers," said Jim Baird, chief investment strategist at Plante Moran Financial Advisors in Kalamazoo, Michigan.

Weak income growth is restraining consumer spending and households are meeting some of their pent-up demand by reducing savings.

(Editing by Neil Stempleman)

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