msnbc.com staff and news service reports
updated 12/23/2010 12:21:04 PM ET 2010-12-23T17:21:04

The economy gave off signs that it was continuing to heal, although slowly and in fits and starts, as one of its roughest years ever was drawing to a close.

Major Market Indices

Consumer spending, one of the economy's main engines, rose moderately in November, boding well for the crucial holiday season. People's incomes grew too, although the gains came from rising stock prices rather than increases in wages and salaries.

And consumer sentiment rose in December to its highest level since June.

"The data releases today support our estimate that GDP growth probably accelerated to between 3.5 percent and 4.0 percent annualized in the fourth quarter," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.

But none of it is quite enough to make a large dent in the 9.8 percent employment rate. Slightly fewer people applied for jobless benefits last week, the second decline in three weeks, showing the labor market still struggling to make solid progress.

And housing remains a drag on the economy. More people bought new homes in November, though far too few to signal better times are ahead for the battered housing industry. Sales rose 5.5 percent to a seasonally adjusted annual rate of 290,000 units, the government said. That's less than half the rate that economists consider healthy. And the increase follows a dismal October pace that nearly matched the lowest level in 47 years.

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On the bright side, the Commerce Department said spending rose 0.4 percent after increasing by an upwardly revised 0.7 percent in October. Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month after a previously reported 0.4 percent gain in October.

The report also showed the Federal Reserve's preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- rose 0.1 percent after being flat for four straight months.

Story: Holiday shoppers pick up pace near the finish

Meanwhile, the Labor Department said the number of people seeking jobless benefits edged down by 3,000 to a seasonally adjusted 420,000 in the week that ended Dec. 18.

Weekly unemployment applications at around 425,000 signal modest job growth. But economists say applications would need to dip consistently to 375,000 or below to indicate a significant decline in unemployment. Weekly applications peaked during the recession at 651,000 in March 2009.

The four-week average, a less volatile measure, rose slightly to 426,000. The average had fallen for six straight weeks to the lowest level in more than two years.

Factory orders
At factories, orders for long-lasting manufactured goods outside of the volatile transportation category rose by the largest amount in eight months in November. Factories saw demand increase for computers, appliances and heavy machinery.

The Commerce Department said total orders for durable goods dropped 1.3 percent, a decline that reflected sagging demand for aircraft and autos. But excluding transportation, orders rose 2.4 percent, the best showing since last March.

"Durable goods orders were reassuring in that we saw a manufacturing plateau over the summer and while the number released today was not strong, at least it showed some resilience in terms of capital goods orders apart from aircraft," said Pierre Ellis, a senior economist at Decision Economics in New York.

The gains in personal spending were the latest to suggest an acceleration in the growth pace this quarter after output increased at a 2.6 percent annualized rate in the July-September period.

Consumers' incomes grew 0.3 percent last month, lifted by gains from fatter stock portfolios. Wages and salaries, however, barely budged. Hiring slowed to a crawl in November and paychecks got thinner. By contrast, incomes increased 0.4 percent in October, reflecting stronger wage gains from a better hiring climate that month. Income growth is the fuel for future spending.

Nevertheless, consumers seem to be more upbeat. They hit malls and stores in droves over the final shopping weekend before Christmas.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment came in at 74.5, up from 71.6 in November.

It was slightly below the median forecast of 74.7 among economists polled by Reuters.

"The overall tenor of news about recent economic developments was on balance more favorable than at any time during the past six years," wrote Richard Curtin, the survey's director.

Upbeat news
Twenty-seven percent of consumers spontaneously reported upbeat news about employment gains, the highest proportion since 1983, he wrote.

The survey's barometer of current economic conditions was 85.3 in December, up from 82.1 percent in November but below a forecast of 86.

The survey's gauge of consumer expectations, which more closely projects the direction of consumer spending, rose to 67.5, also the highest level since June. That was above November's 64.8 percent, and in line with expectations.

A price gauge tied to Thursday's consumer spending report showed that prices — excluding food and energy — rose just 0.8 percent for the second straight month. That is the smallest gain on records stretching back to 1960.

Consumer spending accounts for roughly 70 percent of economic activity. A rise in consumer spending is a key reason why analysts believe the economy picked up in the final three months of this year.

"Rising stock prices, diminishing debts, and returning jobs have American consumers unleashing two-year's worth of pent-up demand accumulated during the Great Recession," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

"The momentum should carry into the New Year given the reduction in employee payroll taxes starting in January."

Analysts project the economy is growing at an annualized rate of at least 3.5 percent in the October-December quarter, up from a 2.6 percent pace in the July-September period.

For the final three months of this year, analysts predict consumer spending rose at an annual rate of up to 4 percent. Still, consumers would have to double that pace to match the spending rate recorded in the spring of 1983, after the 1981-1982 recession. That pace helped the economy grow at a rate of 9.3 percent and lead the country to a recovery.

Thursday's report also showed that consumers saved 5.3 percent of their disposable income in November. That was down slightly from a 5.4 percent savings rate in October.

Analysts predict the savings rate will hover around that high range in the coming months. Americans saved 5.9 percent of their disposable income in 2009, the most since 1992. Before the recession, they were saving just over 1 percent.

The Associated Press and Reuters contributed to this report.

Video: Todays Economic Data

Explainer: The top 10 business stories of 2010

  • Image: BP CEO Tony Hayward surveys gulf spill repair work
    AP

    In 2010, the economy rebounded fitfully from the Great Recession — starting strong, wobbling at midyear but showing enough vigor by year's end to quell fears of a second recession. Yet Americans hardly felt relief under the weight of high unemployment, which began the year at 9.7 percent and is now 9.8 percent.

    An oil spill devastated the economy and environment along the Gulf Coast and hammered energy giant BP's stock price and reputation.

    China muscled past Japan to become the world's No. 2 economy, a reminder that the global economic order is shifting and America's supremacy is diminishing.

    It was a year of job shortages and swollen budget deficits that disheartened Americans and caused deep losses for incumbent Democrats on Election Day. The Federal Reserve tried with scant success to jolt the economy with record-low interest rates.

    The struggling economy was voted the top business story of the year by U.S. newspaper editors surveyed by The Associated Press. The oil spill in the Gulf came in second, followed by China's economic rise.

  • 1. Economy struggles

    Image: Unemployment brochures are seen on display at the employment training facility, JobTrain, in Menlo Park, Calif.,
    AP

    Climbing out of the deepest recession since the 1930s, the economy grows at a healthy rate in the January-March quarter. Still, the gain comes mainly from companies refilling stockpiles they had let shrink during the recession. The economy can't sustain the pace. The lingering effects of the recession slow growth.

    The benefits of an $814 billion government stimulus program fade. Consumers cut spending in favor of building savings and slashing debt. Businesses hesitate to hire. Cities and states lay off workers. Growth slows through spring and summer.

    Unemployment stays chronically high. In May, the number of people unemployed for at least six months hits 6.8 million — a record 46 percent of all the unemployed.

    Pointing to the deficits, Congress resists backing more spending to stimulate the economy. The Federal Reserve seeks to fill the void by announcing it will buy $600 billion in Treasury bonds to try to further lower interest rates, lift stocks and coax consumers to spend.

    As the year closes, the economy makes broad gains. Factories produce more. Consumers — the backbone of the economy — return to the malls. Congress passes $858 billion in tax cuts and aid to the long-term unemployed. Yet more than 15 million Americans are still unemployed. Economists say a full economic recovery remains years away.

  • 2. Gulf oil spill

    Image: Plaquemines Parish coastal zone director P.J. Hahn lifts his boot out of thick beached oil at Queen Bess Island.
    AP

    An explosion at a rig used by BP kills 11 workers and sends crude oil gushing into the Gulf of Mexico. The spill devastates the fishing and tourism industries along the Gulf Coast and causes environmental damage that may last for decades. BP sets up a $20 billion fund to compensate fishermen, restaurateurs and others whose livelihoods were damaged.

    The oil giant still faces civil charges and a criminal investigation by the Justice Department and lawsuits from hundreds of individuals and businesses. BP's stock market value shrinks by more than $100 billion after the April 20 disaster before bouncing about halfway back.

  • 3. China's rise

    Image: Workers install scaffolding at a construction site as a Chinese national flag flies near by in central Beijing.
    Reuters

    China passes Japan as the world's second-biggest economy. The World Bank says it could surpass the United States by 2020. China's gross domestic product is spread out over 1.3 billion people — amounting to about $3,600 per person. That compares with GDP in the U.S. of about $42,000 per person. In Japan, it's about $38,000 per person. China's thirst for raw materials and other products helps the rest of the world recover from the recession. Still, the U.S. and Europe complain that China gives its exporters an unfair competitive edge by keeping its currency artificially low.

  • 4. Real estate crisis

    Image: Home for sale
    AP

    Housing remains depressed despite super-low mortgage rates. The average rate on a 30-year fixed mortgage dips to 4.17 percent in November, the lowest in decades. But home sales and prices sink further. Nearly one in four homeowners owe more on their mortgages than their homes are worth, making it all but impossible for them to sell their home and buy another.

    An estimated 1 million households lose their homes to foreclosure, even though the pace slows after evidence that lenders mishandled foreclosure documents. Some did so by hiring "robo-signers" to sign paperwork without checking their accuracy.

  • 5. Toyota recall

    Image: Toyota Master Service Technician Mike Blomberg inspects a gas pedal assembly.
    AP

    Toyota's reputation for making high-quality cars is tarnished after the Japanese automaker recalls 10 million vehicles for sudden acceleration and other problems. Toyota faces hundreds of lawsuits alleging that some models can speed up suddenly, causing crashes, injuries and deaths. Toyota blames driver error, faulty floor mats and sticky accelerator pedals for the unintended acceleration. The uproar damages its business. Toyota's U.S. sales rise just 0.2 percent through November in a year when the industry's overall sales climb more than 11 percent.

  • 6. GM's comeback

    Image: GM headquarters
    AP

    General Motors stock begins trading again. It signals the rebirth of a corporate icon that fell into bankruptcy and required a $50 billion bailout from taxpayers. GM uses some proceeds from its November initial public offering to repay a portion of its bailout. (Washington still holds about a third of GM's stock.) GM's recovery helps rejuvenate the industry. Sales of cars and light trucks rise 11 percent through November compared with the same period in 2009. Shoppers who had put off replacing their old cars return to showrooms.

  • 7. Financial overhaul

    Image: Barack Obama, Christina Romer, Timothy Geithner, Barney Frank, Paul Volcker
    AP

    Congress passes the biggest rewrite of financial rules since the 1930s. The law targets the risky banking practices and lax oversight that led to the 2008 financial crisis. The law creates an agency to protect consumers from predatory loans and other abuses, empowers regulators to shut down big firms that threaten the entire system and shines more light into markets that have eluded oversight. Republican critics say the law goes too far, imposing burdensome rules that will restrict lending to consumers and small businesses.

  • 8. European bailouts

    Image: Athenians walks behind a board showing exchange rates at a foreign currency exchange shop in Athens on Wednesday.
    AP

    Greece and Ireland require emergency bailouts, raising fears that debt problems will spread and destabilize global markets. European governments and the International Monetary Fund agree to a $145 billion rescue of Greece in May and a $90 billion bailout of Ireland in November. The bailouts require both countries to slash spending, triggering protests by workers. Investors fear that debt troubles will spread to Spain, Portugal and other countries, weaken the European Union and threaten the future of the euro as its common currency.

  • 9. 500 million Facebook users

    Image: Mark Zuckerberg
    AP

    Facebook tops the 500-million-user mark. It expands its dominance of social media and further transforms how the world communicates. If it were a country, Facebook would be the world's third-largest. Facebook tightens its privacy settings after criticism that personal information is being disseminated without users' knowledge or permission. Founder Mark Zuckerberg is named Time magazine's "Person of the Year" and is the subject of a high-profile movie about Facebook's creation.

  • 10. iPad mania

    Image: Customer uses an Apple iPad
    AP file

    Apple Inc. unveils the iPad, bringing "tablet" computing into the mainstream and eroding laptop sales. Apple is expected to sell more than 13 million iPads this year. The iPads sell about twice as fast as iPhones did after their 2007 introduction. The price of Apple stock rockets more than 50 percent in 2010. Competitors scramble to try to catch up. They include the Dell Streak, BlackBerry PlayBook, the Samsung Galaxy Tag and HP Slate.

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