Jobless claims at 2-year low, spending rises

WASHINGTON (BestGrowthStock) – New claims for jobless benefits last week dropped to their lowest level in more than two years while consumer spending rose in October, pointing to a moderate strengthening in economic activity.

But an unexpected sharp drop in orders for long-lasting manufactured goods last month was a reminder that growth would remain sluggish, and already low inflation slowed further, supporting the Federal Reserve’s November 3 decision to again loosen monetary policy.

Initial claims for state unemployment benefits fell 34,000 to a seasonally adjusted 407,000, the Labor Department said on Wednesday, the lowest since mid-July 2008. That was well below economists’ expectations for a fall to 435,000.

Separately, the Commerce Department said consumer spending rose 0.4 percent in October, increasing for a fourth straight month, after a 0.3 percent gain in September. Economists had expected spending, which accounts for about 70 percent of U.S. economic activity, to increase 0.5 percent last month.

“My expectation has been that we’ll drop below 400,000 (jobless claims) before the end of the year, and this puts us on a good pace to do so,” said Michael O’Rourke, chief market strategist at BTIG in New York. “That would mean that we could add 150,000 jobs per month, which is where we need to be in order to bring the unemployment rate down.”

US stock index futures added to gains after the data while U.S. government debt prices held their losses. The dollar pared gains against euro.

The spending report showed the Fed’s preferred measure of consumer inflation — the personal consumption expenditures price index, excluding food and energy – was flat for a second straight month.

But in the 12 months through October, the core PCE index rose 0.9 percent, the smallest since records started in 1960 and well below the U.S. central bank’s 1.7 percent to 2 percent comfort zone.

Though spending rose last month, it was still not robust. Concerns about low inflation and slow economic growth prompted the Fed this month to pump more money into the economy through additional purchases of $600 billion worth of government debt.

The asset purchasing program, also known as quantitative easing in financial markets, is intended to drive already ultra low interest rates further down and boost domestic demand.

The slow nature of the recovery from the worst recession since the 1930s, was underscored by a second Commerce Department report showing durable goods orders tumbled 3.3 percent, the largest decline since January 2009, after surging by 5 percent in September. They had been expected to be flat in October.

Even excluding transportation, orders dropped 2.7 percent, the biggest fall since March 2009, after a 1.3 percent increase in September. Economists had expected orders excluding transportation to rise 0.6 percent in October.

The drop in orders last month was almost across the board, with hefty declines in bookings for machinery, computers, communications equipment and defense aircraft.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, dropped 4.5 percent in October after rising by a revised 1.9 percent in September. Markets had expected a 1 percent increase.

(Reporting by Lucia Mutikani and Mark Felsenthal; Editing by Neil Stempleman)

Jobless claims at 2-year low, spending rises