LITTLE ROCK — Initial claims for jobless benefits unexpectedly dropped last week to a three month low, bolstering hopes that the U.S. labor market is starting to mend.
Claims decreased by 21,000 from the previous week to 434,000, the lowest since early July when fewer auto plants than normal closed for retooling, Labor Department figures showed Thursday. The total number of people receiving unemployment insurance benefits dropped to a two-year low, and those getting extended payments also fell.
Consumer spending, which accounts for about 70 percent of the economy, is beginning to stir, and it is hoped that it will give employers reason to add workers ahead of the Christmas shopping season. Fewer job losses are an initial step toward more hiring as companies such as Ford Motor Co. see sales improve.
“Certainly these are encouraging numbers,” said Brian Jones, senior economist at Societe Generale SA in New York, who forecast that claims would drop to 430,000. At the same time, he said, “given other labor-market readings, you want to be hesitant about saying we’ve turned the corner.” Economists expect the Commerce Department to report today slightly better growth of 2 percent for the July-September period. But that’s still sluggish after a deep recession.
The economy needs to grow by at least 5 percent for a full year to bring down the unemployment rate by a percentage point, economists estimate. The jobless rate is currently 9.6 percent, down only slightly from 9.7 percent in January.
Economists had forecast that claims would increase to 455,000 from a previously reported 452,000 for the previous week, according to the median of 47 projections in a Bloomberg survey.
The number of people continuing to receive unemployment benefits fell by 122,000 in the week ending Oct. 16 to 4.36 million, the fewest since November 2008.
The continuing-claims figure does not include the number of Americans receiving extended and emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 414,100 to 4.66 million in the week ending Oct. 9.
“We are seeing signals of more labor retention at what is typically the crucial consumer-spending time of the year,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. “That extra labor retention could bolster confidence and lead to a further strengthening of chain store sales” heading into the holidays.
The National Retail Federation projects that sales during November and December will rise 2.3 percent from a year ago, the most in four years. Americans plan to spend an average of $688.87, 1 percent more than 2009, and may step up discretionary purchases, according to a survey for the Washington based group by BIGresearch.
Ford, the second-largest U.S. automaker, plans to invest $850 million and add 1,200 jobs in Michigan by 2013 as sales rebound, the company said Monday.
Information for this article was provided by Christopher S. Rugaber of The Associated Press.
Front Section, Pages 10 on 10/29/2010