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Unemployment claims drop

WASHINGTON — In a hopeful sign for the economy, the number of newly laid-off U.S. workers filing claims for unemployment benefits fell below 500,000 last week for the first time since January.

Consumer spending also picked up in October, and new-home sales hit their highest point in more than a year. Together, the reports suggested that the economy should be able to sustain at least a modest rebound. Some economists have worried that the economy was at risk of slipping back into recession.

"When taken altogether, the reports still paint picture of a slow economic recovery," said Mark Vitner, a Wells Fargo economist.

The number of people filing first-time claims for jobless aid fell by 35,000 to 466,000, the Labor Department said Wednesday. That was the fewest since September 2008. And it was far better than the 500,000 economists had expected.

Still, analysts cautioned that initial jobless claims would have to drop to near 400,000 for several weeks to signal actual growth in employment.

A drop of 190,000 in the number of people continuing to claim jobless aid marked the 10th consecutive decline, leaving it at 5.42 million, the lowest level since the week of Feb. 28. The continuing claims figure, though, does not include millions who have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits for up to 73 additional weeks.

Economists estimate the economy will lose a net 145,000 jobs this month. It would have to add 125,000 jobs a month just to keep the unemployment rate from rising.

Some analysts cautioned against reading too much into the sharp drop in unemployment claims. They noted that part of the improvement reflected large seasonal adjustment factors, which smooth out changes that normally occur at certain times of the year. Excluding seasonal adjustments, claims rose. That's normal at this time of year when many construction workers face layoffs because of worsening weather conditions.

Most economists think the recovery will remain so weak and job creation so slight that the unemployment rate will keep rising. Many think the rate, which hit a 26-year high of 10.2 percent in October, could top 10.5 percent by mid 2010. Federal Reserve policymakers expressed concern at their November meeting that the rate could remain elevated for several years, according to minutes of the discussions released Tuesday.

New-home sales rose 6.2 percent to a seasonally adjusted annual rate of 430,000 from an upwardly revised 405,000 in September. Economists had expected a pace of 410,000. Home shoppers were acting before lawmakers decided this month to extend a tax credit for first-time buyers and expand it to some existing homeowners.

Analysts noted that the surge in new-home sales was driven entirely by a 23 percent increase in the South. Sales in all other regions fell.

Consumer spending rose a 0.7 percent last month, following 0.6 percent drop in September, the Commerce Department said. Incomes, the fuel for future spending, rose 0.2 percent for the second straight month.

Wednesday's figures seemed to blunt some fears that consumers could clam up, sending the country into a "double dip" recession. Yet concerns remain that consumer spending will slow early next year.

With spending outpacing income growth, Americans' personal savings rate — savings as a percentage of after-tax income — dipped to 4.4 percent in October from 4.6 percent in September.

Unemployment claims drop 11/25/09 [Last modified: Wednesday, November 25, 2009 9:45pm]
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