Tags: Economy Brightens as Consumers Spend | Layoffs Slow

Economy Brightens as Consumers Spend, Layoffs Slow

Thursday, 23 Dec 2010 01:39 PM

Demand for a range of long-lasting U.S. manufactured goods surged in November and consumer spending rose for a fifth straight month, cementing views of a solid economic growth pace in the fourth quarter.

The brightening outlook was also bolstered by other reports on Thursday showing an improving labor market and consumer sentiment, though housing continues to struggle.

Durable goods orders excluding transportation increased 2.4 percent last month, the largest advance since March, the Commerce Department said. The increase followed a 1.9 percent drop in October and beat economists' expectations for a 1.6 percent rebound.

The durable goods orders report should help to allay fears of a marked slowdown in factory activity.

"This looks like an economy that is now growing over three percent on a quarter-over-quarter annualized basis and even more important as we head into 2011, there is ample stimulus in the system now," said Brian Levitt, an economist at Oppenheimer Funds in New York.

He was referring to the $858 billion tax deal recently signed into law by President Barack Obama, which led forecasters to raise estimates for next year by as much as a percentage point, on top of the Federal Reserve's program to buy $600 billion worth of government bonds to stimulate the recovery.

The economy grew at a 2.6 percent annualized pace in the third quarter and a raft of recent upbeat data ranging from retail sales to trade has led many forecasters to expect gross domestic product to expand at a 3 percent to 3.5 percent pace over the final three months of the year.

Despite the optimistic data on durable goods excluding transportation, overall orders dropped 1.3 percent last month, dragged down by a plunge in the volatile civilian aircraft component. A gauge for business spending rebounded 2.6 percent in November after dropping 3.6 percent the prior month.

In another report, the department said consumer spending rose 0.4 percent, a touch below expectations for a 0.5 percent gains. October's spending was revised up 0.7 percent.

HAND OVER TO CONSUMERS

Manufacturing has largely led the economy's recovery from the worst recession since the Great Depression of the 1930s, but the spending data offered more evidence that handover of the baton to consumers was under way. Consumer spending accounts for more than two-thirds of U.S. economic activity.

The data had little impact on U.S. financial markets, where trade volumes were light ahead of the Christmas break. Stocks on Wall Street were trading flat, while prices for U.S. government fell marginally. The dollar was down against a basket of currencies.

The spending report suggested consumer spending probably accelerated in the current quarter after growing at a 2.4 percent rate in the July-September period.

There was also encouraging news on the labor market, with initial claims for state unemployment benefits falling 3,000 last week to 420,000, matching economists' expectations.

Last week's claims data covered part of the survey period for the government's closely watched employment report for December.

"This report is consistent with our view that the pace of labor market improvement is picking up," said Nicholas Tenev, an economist at Barclays Capital in New York.

Consumers are also starting to notice the improving economic picture. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment rose to 74.5 this month, the highest since June, from 71.6 in November.

CRUDE PRICES WATCHED

Economists expect the improved confidence to continue in 2011, but caution that rising oil prices could slow progress somewhat.

"If we start to see over $90 a barrel or over $3 a gallon at the pump, that's going to have implications for the consumer," said Oppenheimer Funds' Levitt.

The price of crude oil rose 0.8 percent to $91.23 a barrel in New York on Thursday.

Though consumers are spending again, inflation remains muted. The Federal Reserve's preferred measure of consumer inflation — the personal consumption expenditures price index, excluding food and energy — rose 0.1 percent after being flat for four straight months.

In the 12 months through November, the core PCE index rose 0.8 percent, the same margin as in October and still the smallest year-on-year gain since records started in 1960.

While the broader economy is now firmly on an upward trajectory, data from the Commerce Department on Thursday underscored that housing continues to struggle. New single-family home sales increased 5.5 percent to a seasonally adjusted 290,000 unit annual rate in November, less than economists' expectations for a 300,000 unit pace.

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Demand for a range of long-lasting U.S. manufactured goods surged in November and consumer spending rose for a fifth straight month, cementing views of a solid economic growth pace in the fourth quarter. The brightening outlook was also bolstered by other reports on...
Economy Brightens as Consumers Spend,Layoffs Slow
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2010-39-23
Thursday, 23 Dec 2010 01:39 PM
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