Fewer Americans filed new claims for jobless benefits last week while the country's vast service sector continued to grow last month, according to data on Thursday that showed the US recovery was on track, though not speeding along. Other data showed factory orders rose in September, while capital spending plans by businesses surged in a sign of underlying strength in manufacturing.
---- Unemployment claims fall to 397,000 last week
---- Productivity up 3.1pc, unit labour costs down
"The majority of the economic data we got today looked constructive and points to a continuation of growth in the US economy," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. "A few weeks ago investors were extremely worried we were, if not in, then about to head into recession imminently. Economic data over the past few weeks has been encouraging and lessens likelihood of a quick drop into recession."
The Institute for Supply Management said its services index eased to 52.9 in October from 53.0 the month before, falling shy of economists' forecasts for 53.5. A reading above 50 indicates expansion in the sector. A gauge of new orders declined, but the employment component improved to its highest level since June.
"It is still showing that the economy is expanding but not as strong as before," said Bernard Baumohl, chief global economist at the Economic Outlook Group LLC in Princeton, New Jersey. Jobless claims data also was mildly encouraging for the sluggish labour market, with new claims falling below the 400,000 level regarded as reflective of a stable jobs market for the first time in five weeks.
Still, the government's non-farm payrolls report due on Friday is expected to show job creation of 95,000 in October, not enough to push down the 9.1 percent unemployment rate. The Federal Reserve on Wednesday said economic growth had "strengthened somewhat" in the third quarter but it also downgraded its long-term outlook, saying it now expects the economy will expand by a tepid 2.5 percent to 2.9 percent next year, down from the 3.3 percent to 3.7 percent it forecast in June.
With the services sector accounting for about two-thirds of the economy, analysts are eager to see growth accelerate and consumers spending more robustly. But many top store chains reported disappointing October sales on Thursday, illustrating the apprehension many shoppers still feel. Labour Department data showed initial claims for state unemployment benefits dropped by 9,000 in the week ending October 29 to a seasonally adjusted 397,000.
Separately, the Commerce Department said orders for manufactured goods increased 0.3 percent in September. Economists had expected orders to slip 0.1 percent. Orders for non-defence capital goods excluding aircraft - seen as a measure of business confidence and spending plans - jumped 2.9 percent in September, the largest increase in six months.
As well, the Labour Department said US nonfarm productivity increased during the third quarter while growth in wages and benefits slowed sharply, showing that some inflation pressures were easing even as the economy picked up pace. Productivity rose at a 3.1 percent annual rate, the biggest increase since the first quarter of 2010. Unit labour costs fell 2.4 percent, a much bigger decline than the 0.8 percent rate forecast by analysts.