The labor market and housing strengthened while Americans were the most confident about the present since 2008, signaling the expansion may withstand the fiscal impasse.
“The economy is holding up just fine right now,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “Folks that are thinking there was going to be some cataclysmic economic shock to close out the year, I don’t think that’s right.”
Applications for unemployment insurance payments fell by 12,000 to 350,000 in the week ended Dec. 22, bringing the average over the past month to the lowest level in more than four years, Labor Department figures showed today in Washington. The Conference Board, a New York research group, said consumers in its survey were the most optimistic about current conditions since August 2008 even as concern about the future mounted.
The data indicate companies are seeing enough demand to maintain headcounts, a necessary development before hiring picks up. Stocks retreated for a fourth day as lawmakers said there was no progress in talks to avert the fiscal cliff of more than $600 billion in automatic tax increases and spending cuts slated to begin taking effect next week.
“If you could take the fiscal cliff off the table, if you could get the gorilla out of corner of the room, the platform for growth in 2013 is looking reasonably solid,” said John Ryding, chief economist of RDQ Economics in New York. “But how do you get the gorilla out of the room? That’s the problem.”
The Standard & Poor’s 500 Index dropped 1.1 percent to 1,404.58 at 12:56 p.m. in New York as Senate Majority Leader Harry Reid said nothing is happening in budget talks and the nation appears to be heading over the fiscal cliff.
Elsewhere today, Italian business confidence rose in December for a second month after a recession eased in the third quarter and the nation’s borrowing costs declined.
The U.S. federal holiday on Dec. 24 prompted many state offices to close, making it more difficult to complete the jobless claims tally in time, a Labor Department spokesman said as the figures were released today. Fourteen states and territories provided their own estimates, which are usually “fairly accurate,” the spokesman said. The Labor Department estimated data for five states that didn’t provide any figures, he said.
The median estimate in a Bloomberg survey of 41 economists called for 360,000 claims. Projections ranged from 350,000 to 375,000. The prior week’s applications were revised to 362,000 from an initially reported 361,000.
The four-week moving average of claims, a less-volatile measure, dropped to 356,750, the lowest since March 2008.
Purchases of new houses rose 4.4 percent in November to a 377,000 annual pace, the highest level in more than two years, according to data from the Commerce Department.
Demand for new houses was up 15.3 percent from November 2011, today’s report showed. The median price rose 14.9 percent in November from the same month a year ago to $246,200.
Low mortgage rates and dwindling foreclosures are stabilizing prices and attracting buyers more than three years after a recession that was fueled by the industry’s collapse. Growing demand coupled with less inventory has given a boost to builders such as Toll Brothers Inc.
“The housing market’s in a steady recovery that’s likely to continue,” said Renaissance Macro’s Dutta. “We’re probably in the early stages of this positive feedback loop” of cheap credit, tight inventory and rising prices, he said.
Builder confidence has been improving as well. The National Association of Home Builders/Wells Fargo builder sentiment index increased in November to the highest level since April 2006.
Cheaper borrowing costs are helping drive housing demand. A 30-year, fixed-rate mortgage averaged 3.35 percent in the week that ends today, according to Freddie Mac. That is little changed from the 3.31 percent reached in late November that was the lowest in data going back to 1972.
Policy makers are striving to keep rates low to spur an even bigger recovery in housing. The Federal Reserve, which has kept its benchmark interest rate near zero since 2008, this month said it would hold it low “at least as long” as unemployment remains above 6.5 percent and inflation projections are for no more than 2.5 percent.
“Pent-up demand, rising home prices, low interest rates, and improving customer confidence motivated buyers to return to the housing market in fiscal year 2012,” Toll Brothers Chief Executive Officer Douglas Yearley said on a Dec. 4 earnings call. “As household formations accelerated and unsold home inventories dropped to record lows, the industry took further steps towards a sustained housing recovery.”
The improvement in housing, increasing job security and the lowest gasoline prices in a year are probably helping boost consumers’ views on the current state of the economy.
The Conference Board’s current-conditions measure was in line with Bloomberg’s Consumer Comfort Index, which held close to a four-year high last week.
The comfort gauge, a compilation of Americans’ present views on the economy, buying climate and personal finances, eased to minus 32.1 in the period ended Dec. 23 from minus 31.9 the week before, a drop that was within the margin of error of 3 percentage points. The gauge was less than a point from an April reading that was the highest since March 2008.
Future prospects were not as rosy. The Conference Board’s measure of expectations for the next six months decreased to 66.5, a one-year low, from 80.9 in October. That brought the group’s total confidence index down to 65.1, a four-month low.
“The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions.”
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