- 29Sep
(Reuters) - New claims for jobless benefits hit a five-month low last week and the economy was a touch stronger in the second quarter than previously thought, the latest suggestions a new recession is not in the cards.
A gauge of future homes sales, however, showed the housing sector remained on the rocks last month.
Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 391,000, the Labor Department said on Thursday, well below economists' expectations for 420,000. However, it cautioned its seasonal adjustments may have overstated the strength.
Separately, the Commerce Department said U.S. gross domestic product grew at an annual rate of 1.3 percent in the second quarter, up from the previously reported 1.0 percent. Consumer spending and export growth both were stronger than earlier estimated.
The GDP data "suggests the U.S. economy entered the third quarter on a slightly better footing. That encouraging news was reinforced by the larger-than-expected decline in jobless claims, which again cast doubt on the likelihood of the economy tipping back into recession," said Joe Manimbo, a senior market analyst at Travelex Global Payments in Washington.
U.S. stocks opened higher, bolstered by the data and growing confidence in Europe's response to its debt crisis. The dollar edged higher against the yen, while prices for U.S. government debt dropped.
Political haggling in Washington over budget policy and the deepening debt crisis in Europe had eroded confidence, leaving the U.S. economy on the brink of a new recession.
A survey of U.S. chief executives released by the Business Roundtable on Thursday showed their views of the economy's prospects deteriorating in the third quarter, with the number who expect to cut jobs roughly doubling.
Faced with a weak recovery, the Federal Reserve last week announced a new measure designed to push long-term borrowing costs lower by shifting assets on its balance sheet.
In speech on Wednesday, Fed Chairman Ben Bernanke said the U.S. central bank might need to ease monetary policy further if inflation or inflation expectations fell significantly.
The revision to GDP was a touch above economists' expectations for a 1.2 percent pace, and marked a welcome acceleration after a troubling 0.4 percent expansion in the first three months of the year.
Another report from the Labor Department showed the U.S. economy likely created 192,000 more jobs in the year through March than previously estimated.
QUESTIONS ON CLAIMS
The drop in initial claims for unemployment benefits took them below 400,000 for the first time since early August. The department, however, said the weakness of the labor market in recent years may have led the model it uses to adjust the data for seasonal fluctuations to overstate the report's strength.
Still, the total number of unemployed still claiming benefits after an initial week of aid fell to 3.73 million in the week ended September 17 from 3.75 million a week earlier.
The September 17 week corresponds with the survey period for the department's household employment measure, which is used to construct the national unemployment rate.
In August, the jobless rate remained stuck at 9.1 percent with a separate survey of employers showing hiring ground to a halt, which ratcheted up recession fears.
More recent data has tempered those worries. Factory output continues to expand and businesses have maintained their appetite for spending on capital goods.
Housing, however, remains a weak spot.
The National Association of Realtors said its index of pending home sales, based on contracts signed in August, fell 1.2 percent to 88.6, its lowest since April.
NAR said contract signings, which usually precede actual closings by a month or two, were held back by tight credit and, in the Northeast, by Hurricane Irene.
With millions of Americans locked into mortgages worth more than their homes, historically low interest rates are failing to lift sales. Freddie Mac said on Thursday that the average rate on U.S. 30-year fixed rate mortgages fell to a record low 4.01 percent this week.
ENCOURAGING DETAILS
Details of the GDP report were consistent with an economy that is on a slow growth track rather than sliding back into recession.
Consumer spending growth and export growth were both revised up, while import growth was slower than previously estimated. In addition, businesses accumulated fewer inventories than previously estimated, which should support growth in the current quarter.
Business spending was also revised higher, with spending on nonresidential structures the fastest since the third quarter of 2007.
After-tax corporate profits rose at a 4.3 percent rate, the largest increase in a year.
(Reporting by Lucia Mutikani and Jason Lange, Editing by Andrea Ricci)
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