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Strong week for economy raises optimism for 2011

WASHINGTON — Buoyed by a string of hopeful government reports on layoffs, factory production and consumer spending, economists are predicting that hiring and even housing will pick up in 2011 and make it a better year, after all.

The reports issued this week, along with a tax-cut plan that Congress is set to pass, point to stronger overall growth next year, experts say.

Growth "has improved as the year is coming to an end," said Mark Zandi, chief economist at Moody's Analytics. "I'm feeling more optimistic that the economic recovery will evolve into a self-sustaining expansion in 2011."

Zandi expects the economy to grow at an annual rate of 3.5 percent in the October-December quarter, up from previous estimates of about 2.5 percent. And for 2011, he and other economists now expect growth at roughly a 4 percent pace, up from earlier forecasts of about 2.7 percent.

With 4 percent growth, the economy would at least be moving closer to the pace of expansion needed to bring down unemployment. Growth of 5 percent is needed for a full year to lower the jobless rate by 1 percentage point.

The nation's unemployment rate is 9.8 percent, and economists expect it will surpass 10 percent again, though maybe only briefly.

The main reason, they say, is that the improving economy will cause more out-of-work people to resume looking for jobs. People out of work aren't counted as unemployed unless they're actively seeking a job. During recessions, some unemployed people become discouraged and give up.

There is reason for more optimism.

On Thursday, the Labor Department reported that 3,000 fewer people applied for first-time unemployment benefits last week. That brought the seasonally adjusted weekly total to 420,000. The four-week average of claims, a less-volatile measure, fell for the sixth straight week to 422,750. It's the lowest level since August 2008, just before the financial crisis intensified with the collapse of Lehman Bros.

When weekly first-time applications for benefits fall below 425,000, the decline tends to 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. Initial applications for benefits peaked during the recession at 651,000 in March 2009.

First-time applications have been declining in the past two months, raising hopes that layoffs are falling and employers are hiring more. So far, though, job gains have been too few to reduce unemployment.

Strong week for economy raises optimism for 2011 12/16/10 [Last modified: Monday, November 7, 2011 1:42pm]
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