Economy ends 2010 with sigh of relief

Jasmine Longmire (center) of Detroit, waits in line while attending a job fair. Jobless claims fell to the lowest level since July 2008 in the latest week.Paul Sancya / AP
/ Source: staff and news service reports

The U.S. economy ended 2010 with a sigh of relief, rather than a whimper.

The last two indicators of the year, released Thursday, showed a slowly improving job market and a housing market whose wounds are healing, although it remains battered and bruised by the worst real estate slump in decades.

The number of people applying for unemployment benefits fell to its lowest point in nearly two and a half years, a sign that the job market is slowly improving. And the number of Americans who signed contracts to buy homes rose in November, the fourth increase since contract signings hit a low in June.

Separately, the Institute for Supply Management-Chicago's business barometer jumped to 68.6 from 62.5 in November, beating economists' expectations for a dip to 61.0. A reading above 50 indicates expansion in the regional economy.

Although analysts said the data could have been distorted by the Christmas holiday season, the reports still backed perceptions the recovery from the worst recession since the 1930s was gaining traction after a pause earlier in the year.

"There's a certain seasonal bias in some of these things ... but there's no denying that the economy is improving," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.

Jobless claims applications dropped by 34,000 to 388,000, the fewest since July 2008, the Labor Department said Thursday. The number of applications has either fallen or remained unchanged in five of the past six weeks.

Fewer than 425,000 people seeking unemployment benefits signals modest job growth. But economists say applications need to fall consistently to 375,000 or below to bring down the unemployment rate. Applications for unemployment benefits peaked during the recession at 651,000 in March 2009.

The latest report, which covers the week with the Christmas holiday, is considered by some economists to be less reliable than most. One reason is that many state offices close for at least one day. Other seasonal factors make the report more volatile.

Still, a department analyst said there were no unusual factors affecting the report. The department takes into consideration the impact of the holiday.

Analysts said what matters most is the downward trend.

"If we can continue this improving trend, we'll likely see stronger job growth in 2011," said Benjamin Reitzes, an economist at BMO Capital Markets.

Applications are the closest thing to a real-time snapshot of the job market. They reflect the level of layoffs but can also indicate whether companies are willing to add workers.

The four-week average, a less-volatile measure, dropped by 12,500 to 414,000 in the week ending Dec. 25. That's the lowest level since late July 2008.

Meanwhile, The National Association of Realtors said its index of sales agreements for previously occupied homes increased 3.5 percent last month from a downwardly revised reading in October. Contract signings were up in the West and Northeast, but down in the South and Midwest.

Signings are 22.1 percent above June's index reading, which was the lowest level since the private group began tracking the data in 2001. Still, signings are 5 percent lower than November 2009 when buyers were scrambling to close purchases to qualify for the first federal tax credit.

Still, the year is shaping up to be the worst for home sales since 1997.

And sales in 2011 will be facing many of the same problems they faced in 2010: high unemployment, soft demand and a rising number of foreclosures.

Mortgage rates have been rising too. The average rate on 30-year fixed mortgages rose this week to the highest level in seven months. Freddie Mac said the rate increased to 4.86 percent from 4.81 percent in the previous week.