WASHINGTON — Americans earned more and spent more last month, and the number of people applying for unemployment benefits dropped last week to the lowest level in more than two years. At the same time, demand for long-lasting manufactured goods fell off.
All told, the latest government data released the day before Thanksgiving suggest an improving picture of the economy. Income and spending are rising, and layoffs are slowing. This comes amid a decline in manufacturing activity, which had been a source of strength for months after the recession ended, and persistent weakness in the housing market.
"Up to this point I was very reluctant to say we have turned the corner into a self-sustaining expansion. I think we are verging on that," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.
The number of people applying for unemployment benefits fell sharply last week to the lowest level since July 2008, a hopeful sign that improvement in the job market is accelerating.Story: Economy grew slightly faster over summer
The Labor Department said weekly unemployment claims dropped by 34,000 to a seasonally adjusted 407,000 in the week ending Nov. 20. Wall Street analysts expected a much smaller drop.
A Labor Department analyst said weekly claims are volatile during the week between the Veterans Day and Thanksgiving holidays. A key question is whether claims will remain this low in future weeks, or bounce back.
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Still, applications for jobless aid are steadily moving lower. Claims have fallen in four of the past six weeks.
The four-week average, a less volatile measure, dropped for the third straight week to 436,000, the lowest since August 2008. That's a month before the financial crisis intensified with the collapse of Lehman Brothers, worsening the recession.
"The economic recovery in the U.S. is becoming more sustainable, as the improvement in the labor market is finally supporting consumer spending," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.
The government said consumers boosted their spending 0.4 percent in October. That was up from a 0.3 percent increase in September.
People showed a slightly bigger appetite to spend because their incomes rose 0.5 percent, reflecting a slowly healing jobs market. Incomes didn't grow at all the month before. The increases in both income and spending last month were the most since August.
Even with the pickup, consumers are still shying away from the type of spending needed to dramatically lower the 9.6 unemployment rate.
Nevertheless, sentiment appears to be improving. U.S. consumer sentiment rose to its highest level since June on tentative signs of improved job conditions and early discounts from retailers, a survey showed on Friday.
The Thomson Reuters/University of Michigan's final November reading on the overall index on consumer sentiment was 71.6, up from 67.7 in October and also above November's preliminary reading of 69.3.Story: U.S. stimulus gave large jobs boost, CBO says
The median forecast among economists polled by Reuters was for a reading of 69.5. November's reading was the highest since June's level of 76.0.
"The economic news heard by consumers grew significantly more favorable in November. Net references to job gains improved by 17 percentage points in November, rising to its highest level since June," the survey's director Richard Curtin said in a statement.
Amid the good signs for the economy, came a worrying trend in manufacturing, however. Orders to U.S. factories for long-lasting manufactured goods plunged in October by the largest amount in 21 months, reflecting widespread weakness in a number of areas.
The Commerce Department said orders for durable goods dropped 3.3 percent last month, the biggest setback since January 2009, when the country was still mired in a recession. Excluding transportation, which is often volatile, orders were down 2.7 percent, the biggest drop in this area since March 2009.
The unexpectedly sharp declines raised questions about the strength of manufacturing, which has been one of the economy's standout performers.
And housing showed again why it's still one of the economy's weakest point. The Commerce Department reported that sales of new single-family homes declined 8.1 percent to a seasonally adjusted annual rate of 283,000 units in October. That was just 2.9 percent above the all-time low of 275,000 units hit in August for government records that go back to 1963.
The median price of a home sold in October dipped to $194,900, the lowest level since October 2003.
Normally after a recession, consumers spend more freely. But more than one year after the recession ended, Americans are more focused on getting their personal finances in order. They are paring down debt, watching their spending and building savings.
Americans saved 5.7 percent of their disposable income in October. That was up from 5.6 percent in September and was the most since August. Before the recession, they were saving just over 1 percent.
Federal Reserve Chairman Ben Bernanke and other economists worry that high unemployment, hard-to-get-credit, weak home values and lackluster wage growth are forces that will restrain the growth in consumer spending.
To counter that and try to invigorate the economy, the Fed recently launched a $600 billion program to buy government bonds. By doing so, the Fed hopes to boost stock prices and make loans cheaper, positive developments that could make people want to spend more.
Even faced with all the negative forces, Americans are still buying. That's important because their spending accounts for roughly 70 percent of all economic output. With consumers holding up, fears the economy could slip back into a recession have receded.
In the July-September quarter, consumer spending grew at a 2.8 percent pace, the most in nearly four years.
Leading economists in an AP Economy Survey predict consumer spending will grow at a 2.4 percent pace in the October-December quarter. Consumer spending would need to grow by at least twice that pace to translate into the type of robust economic growth to make a big dent in the nation's unemployment rate.
The nation's unemployment rate has been stuck at 9.6 percent unemployment rate for the past three months. New projections from Federal Reserve suggest that won't change much for a few years.
A gauge linked to Wednesday's income and spending reported showed that inflation is running lower.
Prices for goods excluding food and energy rose just 0.9 percent in the 12 months ending in October. That was down from a 1.2 percent annual gain posted in September. Inflation is running at a pace below the Fed's comfort zone of between 1.5 percent and 2 percent.
The Fed's new economic aid program also is aimed at making sure that very low inflation doesn't turn into deflation. Deflation is a dangerous and prolonged drop in prices, wages and in the values of homes and stocks.
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