Housing, jobs provide upbeat signs on US economy
The number of Americans filing new claims for unemployment aid hit a five-year low last week and residential construction surged in December, the latest signs that the US economic recovery remains on track.
The reports on Thursday showed the economy was weathering an uncertain fiscal environment surprisingly well. Still growth in the fourth quarter was likely subdued, and only a modest pick-up was expected in the first three months of this year.
"While growth has been slow, the damage done from the uncertainty surrounding the fiscal cliff was not sufficient to topple the recovery," said Millan Mulraine, a senior economist at TD Securities in New York.
The fiscal cliff refers to a wave of deep government spending cuts and tax increases, part of which was avoided after a last minute agreement by US lawmakers. A fight over raising the government's borrowing limit looms.
Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said on Thursday. It was the largest weekly drop since February 2010 and ended four straight weeks of increases.
While problems adjusting the data for seasonal fluctuations might have exaggerated the size of the decline, economists said the report still suggested an improvement in sluggish labor market conditions and the broader economy as a whole.
"Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year," said John Ryding, chief economist at RDQ Economics in New York.
The fairly upbeat jobs and housing data helped to lift US stocks to a five-year high and supported oil prices. US Treasury debt prices fell and the dollar was little changed against a basket of currencies.
A separate report from the Commerce Department showed housing starts jumped 12.1 per cent last month to their highest level since June 2008. Permits for future home construction were also the highest in about 4-1/2 years.
Though warm weather likely helped, the data was confirmation of the improving housing market tone, and gains in home building were across all four regions. Groundbreaking increased for the both single-family homes and multi-family units.
Housing is no longer a drag on the economy and residential construction is expected to have contributed to growth last year for the first time since 2005.
The reports came on the heels of data this week showing solid retail sales and manufacturing growth in December.
But weak exports, a slow pace of inventory accumulation and the reversal of a surge in defense spending probably slowed growth to below a 2 per cent annual pace in the fourth quarter.
Outlook still shaky
Still, the outlook for the economy remains shaky. A third report showed factory activity in the US mid-Atlantic region contracted this month as new orders tumbled, pointing to a cooling in manufacturing activity.
The Philadelphia Federal Reserve Bank said its business activity index fell to -5.8 from 4.6 in December. A reading below zero indicates contraction in manufacturing in eastern Pennsylvania, southern New Jersey and Delaware.
"Manufacturing has slowed but it's still growing. I'm not going to read too much into this until I see other regional surveys," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.
The claims data covered the survey week for January's nonfarm payrolls. The four-week moving average for new jobless claims, a better measure of labor market trends, fell 6,750 to 359,250, suggesting some improvement in labor market conditions.
Job growth has been gradual, with employers adding 155,000 new positions in December. The unemployment rate held steady at 7.8 per cent last month.
The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid increased 87,000 to 3.21 million in the week ended Jan. 5.
The four-week average of the so-called continuing claims was the lowest since July 2008.