Labor market brightens, consumers step up spending

WASHINGTON Thu Dec 13, 2012 1:16pm EST

1 of 2. Job seekers stand in line to meet with prospective employers at a career fair in New York City, October 24, 2012.

Credit: Reuters/Mike Segar

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WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits fell sharply last week to a near four-year low and retail sales rebounded in November, hopeful signs for the struggling economic recovery.

Initial claims for state unemployment aid fell for a fourth straight week, dropping 29,000 to a seasonally adjusted 343,000, the Labor Department said on Thursday. They are now at their lowest level since early October, and within a hair of territory last seen in early 2008.

Another report suggested consumer spending picked up last month despite fears Washington will fail to avoid harsh austerity measures that could trigger a recession. Worries over this "fiscal cliff" hit sentiment hard in early December.

"It is hard to detect material evidence that fiscal cliff uncertainties are weighing on consumer behavior," said Michael Feroli, an economist at JPMorgan in New York.

A slow but steady improvement in the labor market has helped support consumer spending, which propped up economic growth in the third quarter when business investment sagged.

Economic growth is expected to slow in the fourth quarter, hurt by slower inventory building and a pull back in investment by companies worried about the fiscal cliff.

However, the economy does appear to be moving quickly past the headwinds presented by superstorm Sandy, which hit the East Coast in late October and led to a spike in jobless claims.

The four-week moving average for new claims, which irons out weekly volatility, dropped 27,000 to 381,500.

"The labor market might be improving a bit quicker than expected," said David Sloan, an economist at 4Cast in New York.

U.S. stocks dipped despite the data. Investors appeared cautious about making aggressive bets in the midst of negotiations in Washington to slow or avoid the $600 billion in spending cuts and tax hike set to take hold early next year.

CORE SALES MEASURE MARCHES HIGHER

The Commerce Department said retail sales rose 0.3 percent last month, rebounding from October's 0.3 percent decline.

The increase fell short of the consensus forecast in a Reuters poll of economists, but a measure of core sales exceeded expectations.

Core retail sales, which strip out automobiles, gasoline and building materials rose 0.5 percent in November. The government uses this measure, which was flat in October, to calculate consumer spending.

Despite the improvement, growth in spending is still seen slowing in the fourth quarter.

"Consumers have recovered somewhat ... but the trend has been declining since last June," said Joseph Trevisani, a market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

GDP growth is expected to slow to a 1.2 percent annual rate in the last three months of the year, a Reuters poll showed on Wednesday, down from a 2.7 percent rate in the third quarter.

The rise in overall retail sales was tempered by a 4 percent decline in receipts at gasoline stations, the biggest drop since December 2008. That likely reflects a fall in gasoline prices during the month, which left consumers with more money to spend on other things.

The Labor Department said separately that prices received by the nation's farms, factories and refineries dropped 0.8 percent in November as gasoline prices fell by the most since March 2009.

So-called core producer prices, which strip out volatile energy and food costs, rose a modest 0.1 percent.

The report underscored a general lack of inflation pressure in the economy, giving the Federal Reserve room to continue with efforts to bring down the nation's 7.7 percent unemployment rate.

The Fed announced a new round of monetary stimulus on Wednesday, taking the unprecedented step of indicating interest rates would remain near zero until unemployment falls to at least 6.5 percent.

In a packed day for government data on the economy, the Commerce Department also said business inventories, which are a key component of economic growth, rose 0.4 percent in October, in line with expectations.

(Reporting by Jason Lange; Additional reporting by Chris Reese and Nick Olivari in New York; Editing by Neil Stempleman and Tim Ahmann)

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Comments (25)
Harry079 wrote:
With all this great wonderful new I guess Congress and the President can just take the rest of the year off and forget all about this fiscal cliff scam.

After all the President did win the election and he deserves a break today.

Dec 13, 2012 10:31am EST  --  Report as abuse
R_Holliday wrote:
come on, guys. The election is over, no need to keep pretending the economy is getting better.

Dec 13, 2012 10:49am EST  --  Report as abuse
tl29szzz920 wrote:
Its the holidays so of course retail hiring goes up, and sales go up. The bad news is that in January unemployment will go back up.

Dec 13, 2012 10:54am EST  --  Report as abuse
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