By Don Miller
The number of Americans filing first time claims for unemployment insurance dropped last week. But government reports showed yesterday (Thursday) that continuing job losses are spurring workers to increase their rate of savings, putting a crimp in spending, and exerting downward pressure on disposable income.
The U.S. Department of Labor said initial claims for state unemployment insurance benefits declined by 14,000 to a seasonally adjusted 631,000 during the week ended April 25, less than analysts had forecast.
But the number of people staying on jobless benefit rolls rose by 133,000 to 6.27 million. It was the 13th consecutive week that continuing claims have posted a record and was the highest reading since December 1982. The recession has claimed more than 5 million U.S. jobs since it began in December 2007.
Nevertheless, analysts monitoring the trends in jobless claims for clues as to when the recession may end were encouraged by the data.
"There's been a very large policy response to the financial turbulence of late last year and that's starting to work its way through the financial sector, and that in turn is helping to stabilize," the rest of the economy, Jonathan Basile, an economist at Credit Suisse Holdings USA in New York, told Bloomberg News.
Other analysts echoed his sentiments.
"The cumulative weight of the evidence over the last several weeks is that the economy is moving closer to a trough," David Resler, chief economist at Nomura Securities (ADR:NMR) in New York, told Reuters.
"I don't know that we're there yet, but I think we're in the vicinity of the low point and beyond that lies a very sluggish and hesitant recovery, but nonetheless a period of expanding activity instead of contracting activity," he said.
Consumer Spending Revised Down
A separate report from the U.S. Department of Commerce reversed data released Wednesday on first-quarter U.S. gross domestic product (GDP), which initially showed consumer spending rebounded 2.2% in the first three months of the year after sinking in the last half of 2008. The revision said consumer spending actually fell 0.2% in March after a 0.4% increase in February.
The corrected data seemed to correlate with additional Commerce Department data that showed Americans increased their savings to 4.2% in March to an annual rate of $455.3 billion, up from 4% in February.
Personal income also slipped 0.3% after declining 0.2% in February, the Commerce Department said. Personal income has now dropped in five of the last six months.
Despite the reversal in consumer spending, which accounts for roughly 70% of U.S. economic activity, Joel L. Naroff of Holland, PA-based Naroff Economic Advisors says the overall trend is still positive.
"The savings rate broke 4%, which clearly shows that households are trying desperately to clean up their balance sheets," he wrote in a note to investors. "The modest drop off in spending does not change the fact that individuals are starting to buy a few more things and are attempting to live their lives a little more normally,"
"The March drop should not be taken, at least not yet, as a signal that people are rethinking their decisions to start spending again," he said.
News and Related Story Links:
U.S. Initial Jobless Claims Fell to 631,000 Last Week
U.S. jobless claims fall, but spending and income ease
- Naroff Economic Advisors:
March Income and Spending