June 7, 2007 / 3:31 PM / 13 years ago

Data shows economy poised for better growth

WASHINGTON (Reuters) - The labor market is holding steady, businesses are rebuilding inventories and the consumer is still spending, all signs pointing to stronger economic growth in the latter part of this year.

Construction workers work on scaffolding at the Plaza Hotel in New York, May 23, 2007. The number of U.S. workers signing up for unemployment aid edged down slightly last week, the Labor Department said on Thursday in a report underscoring stability in the labor market despite sluggish growth. REUTERS/Keith Bedford

Fewer U.S. workers signed up for unemployment aid last week, according to the Labor Department. The number of U.S. workers filing initial claims for jobless benefits slipped by 1,000 to 309,000, the department said on Thursday.

Other data showed wholesalers boosted inventories in April, and retail chain stores saw moderate sales gains in May.

“We’re not quite out of the woods yet, but the numbers are pretty consistent in showing that we’re on track for an improved second half,” said Kurt Karl, chief economist at Swiss Re in New York.

For several weeks now the number of workers seeking an initial week of jobless aid has held steady around 300,000, a level economists say indicates a stable labor market.

“Jobless claims continue to hold at relatively low levels, which we judge to be consistent with solid job creation,” economists at Bear Stearns wrote in a research note after the release of the latest data on Thursday.

The report added to the evidence of labor-market health presented by a government report on employment last week that showed an increase of 157,000 jobs in May and a steady unemployment rate of 4.5 percent.

A separate report from the Commerce Department on Thursday showed inventories at U.S. wholesalers rose 0.3 percent in April as stocks of nondurable goods saw the biggest percentage increase in five months.

After working hard to whittle down bloated inventories, economists said U.S. businesses now appeared to be restocking. A report last week from the Institute for Supply Management showed factory activity picked up last month as a result.


Financial markets showed little reaction to the data on Thursday as they focused on the U.S. Treasury bond market, where prices plunged, leading to the biggest one-day spike in yields in about three years.

The dollar gained support from the rising market interest rates, but the specter of higher borrowing costs hurt stocks, which fell for a third straight day. The Dow Jones industrial average closed down 199 points, or nearly 1.5 percent.

A slew of strong data has led to a reassessment of the prospects for interest-rate cuts from the Federal Reserve. A growing minority of Wall Street firms think the central bank’s next move may be a rate hike at some point down the road.

Many economists had expected a slumping housing market and rising gasoline prices to dampen consumer spending and cut into economic growth. But, so far, consumers appear to be holding steady.

U.S. retail chains on Thursday reported moderate May sales increases as warmer weather fueled demand for seasonal items, like gardening and other outdoor goods, helping retailers rebound from a dismal April.

But several specialty apparel chains posted disappointing results, due in part to weak sales of women’s clothes and increased competition from department stores trying to lure fashionable shoppers.

Among retailers reporting May sales at stores open at least a year, 57 percent exceeded Wall Street expectations while 41 percent fell short, according to research firm Retail Metrics. The performance was better than the firm’s long-term average.

Toting up the results, the International Council of Shopping Centers said chain store sales rose 2.5 percent from a year earlier.

Wal-Mart Stores Inc., the world’s largest retailer, said sales at stores open at least a year rose 1.1 percent in May, excluding fuel sales. Including fuel, sales rose 1.3 percent as weakness in apparel and home goods was offset by strength in lawn and garden goods, live plants and groceries.

The report on inventories showed wholesalers were having a hard time keeping pace with a pickup in their sales in April.

The inventories-to-sales ratio, a measure of how quickly stocks would be depleted at the current sales pace, fell for the fourth straight month, dropping to 1.12 months from 1.13 months in March.

“The decline in the wholesale inventory-sales ratio to a record low level supports our view that inventory levels are inadequate and inventory accumulation going forward is likely to support growth,” economists at Bear Stearns wrote.

Additional reporting by Nancy Waitz in Washington and Martinne Geller in New York

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