Consumers gain confidence as U.S. job market firms: economy

WASHINGTON – Americans last week held the most positive attitudes toward the economy in almost seven years, showing how a strengthening job market is putting the expansion on stronger footing.

The Bloomberg Consumer Comfort Index’s measure on the state of the economy advanced last week to its highest point since January 2008, according to a report today. Figures from the Labor Department showed fewer workers filed claims for jobless benefits over the past month than at any time since May 2000.

Confidence will probably keep climbing as consumers feel more secure in their jobs and gasoline prices retreat to the lowest level in three years. Bigger wage increases would help keep sentiment improving and lay the groundwork for gains in spending that will boost growth even as economies in Europe and emerging nations cool.

“There’s no let-up in the labor-market improvement,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the top claims forecaster over the past two years, according to data compiled by Bloomberg. “There’s no sign of any spillover from the turmoil in the markets and the global slowdown. The U.S. economy is chugging along despite the global turmoil.”

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Stocks jumped, recovering from yesterday’s retreat, as earnings from Caterpillar Inc. to 3M Co. exceeded analysts’ estimates and out of Europe signaled the slowdown in growth was abating. The Standard & Poor’s 500 Index rose 1.2 percent to 1,950.82 at the close in New York.

Euro area

Data today showed the euro-area economy may have moved one step away from another recession as manufacturing unexpectedly grew across the region this month, while Spain’s economy showed signs of a further recovery.

The Bloomberg Consumer Comfort Index for the week ended Oct. 19 climbed to 37.7, matching the second-highest level since August 2013, today’s report showed.

The economy component rose to 28 from 25.7 a week earlier. The gauge of personal finances increased to 52.4 from 50 a week earlier, while the buying-climate measure, which asks whether this is a good time to make purchases, was little changed at 32.7 compared with 33 the prior period.

Lower prices at the gas pump and limited inflation for other goods and services are helping increase purchasing power at a time when wages are slow to pick up.

Cost of living

The cost of living barely rose in September, restrained by decelerating prices for a broad range of goods and services, a report from the Labor Department showed yesterday. The national average cost of a gallon of regular gasoline was $3.08 yesterday, down 62 cents from a high this year in April, according to AAA, the largest U.S. auto group.

“A lot of this latest uptick in confidence is also associated with the decline in gasoline prices, which has heavy influence on consumer psychology,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “The decline in gas prices leaves them in a better position heading into the holiday-shopping season.”

The Labor Department’s jobless claims report today showed the four-week average of applications, a less-volatile measure than the weekly figure, dropped to 281,000, the lowest since May 2000, from 284,000 the week before.

The reading for the week ended Oct. 18 climbed by 17,000 to 283,000, in line with the median forecast of 52 economists surveyed by Bloomberg.

Fewer firings

Sustained demand for goods and services is encouraging companies to retain workers, even as economic growth slows abroad. As a result, firings have hovered near historically low levels while gains in payrolls also bolster total income, giving households the confidence and the means to spend.

“Companies are very reluctant to lay off the workers they already have on the payroll,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois, who accurately forecast the rise in initial claims. “They expect demand to pick up and they expect more of what we call plow- horse economic growth — slow and steady.”

The drop in firings is among reasons why the economy’s prospects are improving. The index of U.S. leading indicators accelerated in September, signaling the world’s largest economy will keep expanding into 2015, another report today showed.

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.8 percent after no change in August, the New York-based group said.

‘Pretty solid’

“Overall, growth is looking pretty solid,” said High Frequency’s O’Sullivan.

Nine of the 10 indicators in the leading index contributed to the increase, including the drop in jobless claims, improving orders for business equipment and consumer goods and increasing building permits.

Americans are returning to the real-estate market as mortgage rates remain low and employers have added 2 million workers to payrolls so far this year.

The housing market is showing “more modest growth” than in 2012 and 2013, according to Larry Seay, chief financial officer at Meritage Homes Corp., a Scottsville, Arizona-based builder. At the same time, “it is still in the early innings of recovery and has a potential to grow for many years,” he said at an Oct. 1 finance conference.

Federal Reserve policy makers, meeting next week, are debating how much longer to keep interest rates near zero as the labor market improves while global weakness threatens to derail their U.S. inflation goals.

The central bank said last month that asset purchases would probably end after its next meeting, on Oct. 28-29, and reiterated that rates would remain on hold for a “considerable time” after the program ends.

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