New claims for unemployment benefits fell to a new four-year low last week, suggesting that the U.S. labor market continues to improve. And a survey of factory purchasing managers indicated that manufacturing activity continues to grow.
But new data on personal incomes, consumption and construction spending all cast doubt on the overall strength and durability of the U.S. economic recovery.
The U.S. economy, after a year of concern about problems in Europe and the possibility of a broad “double dip” recession, gathered pace at the end of last year. The faster growth began being felt, as well, in an expanding job market and falling unemployment.
The drop in new unemployment claims to 351,000 last week was a notably welcome sign the trend is continuing. Benefits claims have fallen steadily since the fall, with the unemployment rate dropping to 8.3 percent.
The outlook for U.S. workers “appears to have strengthened markedly,” analysts for Capitol Economics wrote in a research note.
In testimony before the Senate Banking Committee on Thursday morning, Federal Reserve Chairman Ben S. Bernanke struck a cautious note. “Notwithstanding the better recent data, the job market remains far from normal: The unemployment rate remains elevated, long-term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high, “ he said. “The fundamentals that support spending continue to be weak: Real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers. Consumer sentiment, which dropped sharply last summer, has since rebounded but remains relatively low.”
In February, at least, the manufacturing sector was buoyed by strong export growth and “workmanlike” results from around the country, Michael Montgomery, U.S. economist for the IHS Global Insight consulting firm wrote.
“The manufacturing side of the economy has been rolling along in solid fashion,” and should continue to do so, he said.
By contrast, personal incomes and spending grew only slightly in January, according to the latest data, missing analysts’ forecasts and suggesting that labor market gains are not spurring stronger household consumption. Household spending is a major factor in U.S. economic growth.
The outcome led Barclay’s Capital to drop its estimates of U.S. economic growth for the first quarter to 1.5 percent, on an annualized basis, from 2.5 percent previously.
While Barclay’s said incomes and spending may be poised for a rebound later in the year, it was still a disappointing start to 2012.
Construction spending, meanwhile, fell in January — the first decline since the summer and a disappointment for a sector of the economy that has suffered through years of stagnation.
Still, IHS economist Patrick Newport dubbed it a “so-so report” because residential housing construction managed to expand — though that was offset by a drop in spending on commercial buildings, factories and other non-residential structures.
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