New US claims for jobless benefits hit their lowest level in more than two years last week while consumer spending rose for a fourth straight month in October, suggesting the economy is nearing a self-sustaining recovery. The picture was further brightened by another report on Wednesday that showed consumer sentiment in November reached its highest level since June, likely reflecting the surge in stock prices in the wake of a Federal Reserve decision to loosen monetary policy.
-- Durable goods orders fall; news home sales, prices slump
-- Consumer sentiment in November highest since June
But the upbeat mood was tempered somewhat by unexpected declines in new home sales and orders for long-lasting manufactured goods in October. "Up to this point I was very reluctant to say we have turned the corner into a self-sustaining expansion. I think we are verging on that," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.
Initial claims for state unemployment benefits fell 34,000 to 407,000, the lowest since mid-July 2008, the Labour Department said. That was well below economists' expectations for a fall to 435,000. Claims have broken out of lofty ranges that had held for much of the year and are now firmly in territory that economists say suggest solid job creation.
A separate report from the Commerce Department showed consumer spending rose 0.4 percent in October, just a touch below the 0.5 percent rise expected on Wall Street. The jobs and spending data provided further evidence of a strengthening in economic activity and helped to divert investors' attention from Ireland's debt crisis. US stocks rose, while prices for government debt tumbled. The US dollar was little changed against a basket of major currencies.
Spending is expected to get a boost this Friday, the traditional start to the holiday shopping season. Consumers' willingness to open their wallets was highlighted in upscale jeweller Tiffany & Co's quarterly results, which beat Wall Street forecasts. Although spending increased last month, inflation continued to slow, helping to deflect criticism of the Fed's decision to pump more money into the economy by buying an additional $600 billion worth of government debt. The consumer spending report showed the Fed's preferred core inflation measure slipped to just 0.9 percent when measured from year-ago levels, the smallest gain on records dating to 1960. Fed officials, who are worried an unexpected shock could the economy into a troubling deflation, want to see inflation running around 1.7 percent to 2 percent.
Economists attributed the rise in the Thomson Reuters/University of Michigan's final November consumer sentiment index to both improving labour market conditions and the lift stocks received from the Fed's so-called quantitative easing. The index reached 71.6 this month, up from 67.7 in October. "It does look like the launch of quantitative easing is coinciding with a turning point in the US economy. Can we say there is a direct one-to-one correlation, I don't think we can say that yet, but the timing sure looks good," said PNC Financial's Dye.
But an 8.1 percent drop in new homes sales to a 283,000 unit annual rate last month was a reminder of the risks to the recovery from the worst recession since the 1930s. The median new home price fell a record 13.9 percent from September to the lowest level since October 2003.
The Commerce Department also said durable goods orders slipped 3.3 percent, the largest decline since January 2009. Excluding transportation, orders dropped 2.7 percent, the biggest fall since March 2009. Though economists were reluctant to read too much into the data given its volatile nature and the fact that the decreases followed big gains in September, they were worried that the drop in orders was almost across the board. More concerning, non-defence capital goods orders excluding aircraft - a closely watched proxy for business spending - dropped 4.5 percent after rising 1.9 percent in September.
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