Friday, December 23, 2011

Economy seems to be gaining momentum

In in the latest sign that the U.S. economy is surging at year's end, unemployment claims have dropped to the lowest level since April 2008, long before anyone realized that the nation was in a recession.

Claims fell by 4,000 last week to 364,000, the Labor Department said Thursday. It was the third straight weekly drop. The four-week average of claims, a less volatile gauge, fell for the 11th time in 13 weeks and stands at the lowest since June 2008.

While the economy remains vulnerable to threats, particularly a recession in Europe, the steady improvement in the job market is unquestionable.

"The underlying trend is undeniably positive," said Jennifer Lee, senior economist with BMO Capital Markets. "I think everyone is starting to come around to the view that, yes, there is a recovery going on."

Unemployment claims are a sort of week-to-week EKG for the job market. Except for a spike this spring, after the earthquake and tsunami in Japan hurt U.S. manufacturing, they have fallen steadily for a year and a half.

Claims peaked at 659,000 in March 2009. In the four years before the Great Recession, they mostly stayed between 300,000 and 350,000. That claims are edging closer to that range is a sign that the layoffs of the past three years have all but stopped.

"We haven't yet really seen substantial numbers of new jobs, but this is definitely an encouraging sign of what lies down the road," said Sam Bullard, an economist at Wells Fargo.

The steady decline may also herald a further decline in the unemployment rate, which fell in November to 8.6 percent from 9 percent the month before. The December rate will be announced Jan. 6.

If unemployment claims keep declining, the unemployment rate might fall as low as 8 percent before the November elections, said Dan Greenhaus, chief global strategist at BTIG LLC, a boutique brokerage.

The presidential election will turn on the economy. Ronald Reagan holds the post-World War II record for winning a second term with the highest unemployment rate. He won in 1984 with unemployment at 7.2 percent.

Economists will also watch closely on Jan. 6 to find out how many jobs were added this month. It added at least 100,000 each month from July through November, the best five-month streak since 2006.

"When you fire fewer people, hiring unquestionably follows," Greenhaus said. He expects employers to create as many as 200,000 jobs per month if the trend continues.

In another encouraging report Thursday, the Conference Board's index of leading economic indicators rose strongly in November for the second straight month, suggesting that the risks of another recession are receding.

The index puts the economy on track to grow at a 4 percent annual rate in the fourth quarter, which ends this month, said Ian Shepherdson, chief U.S. economist with High Frequency Economics.

The economy hasn't posted 4 percent growth or stronger since the first quarter of 2006, when it grew at a 5.1 percent rate. The best it has done since the recession was 3.9 percent, in the spring of 2010.

The Great Recession lasted from December 2007 through June 2009. Economists didn't declare that it was under way until December 2008.

The economy grew at a 1.8 percent annual rate in the third quarter of this year. The government revised that figure downward from 2 percent Thursday because Americans spent less than the government had estimated.

Besides a brightening job market, the positive factors include strong holiday shopping and cheaper gas, which leaves people more money to spend on other things and helps consumer confidence.

"The economy is carrying some clear momentum into 2012," said economist Joel Naroff of Naroff Economic Advisors.

The flip side, said Bullard, the Wells Fargo economist, is political uncertainty at home and a near-inevitable recession across the Atlantic. Those factors will weigh on growth next year and might reverse the momentum that the job market appears to be enjoying.

In Europe, the 17 nations that use the euro currency are struggling to deal with debt problems and keep the currency union together. A recession there would be bad news for American companies that export to Europe.

Another source of uncertainty for 2012 is what Congress will do about the Social Security payroll tax cut, set to expire Jan. 1. Extended unemployment benefits for the long-term unemployed also expire on that date.

The tax cut applies to 160 million Americans. For a worker earning $50,000, it saves $1,000 over a year. For a high-earning couple, it would save $4,404 over next year, or about $85 a week.

Economists say that failing to renew the tax cut and emergency unemployment aid could cut a full percentage point from economic growth next year.

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? 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Source: http://www.msnbc.msn.com/id/45764978/ns/business-eye_on_the_economy/

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