story by Lorraine Woellert and Shobhana Chandra
Claims for unemployment benefits fell to the lowest level in a month and American companies added more workers than forecast, easing concern the labor market may be stagnating.
Jobless claims decreased by 12,000 to 365,000 in the week ended Sept. 1, the Labor Department reported today (Sept. 6) in Washington. Private employers expanded payrolls by 201,000 in August, according to figures from Roseland, N.J.-based ADP Employer Services, exceeding the 140,000 median gain forecast by economists in a Bloomberg survey.
Another report showing U.S. services expanded at a faster pace boosted the outlook one day before the Labor Department releases data on a job market that Federal Reserve Chairman Ben Bernanke has said is cause for “grave concern.”
Stocks rallied after the figures and as European Central Bank policy makers agreed to an unlimited bond-purchase program to ease the region’s debt crisis.
“We’re starting to see some stability in the labor market,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, who correctly forecast the level of jobless claims. “The labor market is that it continues to move in the right direction, but probably not as fast as Fed officials would like. We’re going to get a better handle on that tomorrow.”
The Standard & Poor’s 500 Index climbed 2% to a four-year high of 1,432.12 at the 4 p.m. close in New York. The yield on the benchmark 10-year Treasury note increased to 1.67% from 1.60% late yesterday.
Unemployment claims in the U.S. were forecast to decline to 370,000, according to the median estimate of 48 economists surveyed by Bloomberg. The Labor Department revised the previous week’s figure up to 377,000, from an initially reported 374,000.
Employers are limiting firings as demand warrants holding on to current workers, helping support consumer spending, the biggest part of the economy. At the same time, weak hiring and unemployment exceeding 8% are reasons why Bernanke said last week that further easing remains an option.
“Clearly, the direction of claims is encouraging,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York. The improvement “doesn’t seem to be substantial, but we are moving in the right direction.”
Companies including Lexmark International Inc., Revlon Inc., Goldman Sachs Group Inc., and Google Inc. have announced plans to cut staff. Others are benefiting from improving demand. Railroad Norfolk Southern Corp. in Norfolk, Virginia, has been helped by a surge in pickup truck sales.
“We look at the economy as fairly stable at this point,” Dave Denton, chief executive officer of Woonsocket, R.I.-based CVS Caremark Corp., the largest provider of prescription drugs in the U.S., said at a Sept. 5 conference.
Another report today showed elevated unemployment and rising gasoline prices kept consumer confidence little changed near an eight-month low last week.
The Bloomberg Consumer Comfort Index was at minus 46.5 in the period ended Sept. 2 compared with minus 47.3 in the prior week. It was the fifth consecutive week the index has registered a reading lower than minus 40, a level typically associated with severe economic discontent.
Tomorrow’s (Sept. 7) Labor Department report may show overall hiring, which includes government jobs, climbed by 130,000 in August after a gain of 163,000 in July, according to the median forecast of economists surveyed by Bloomberg.
Private payrolls rose by 140,000, and the jobless rate probably remained at 8.3% for a second month, according to Bloomberg surveys. The unemployment rate has stayed above 8% since February 2009.
The agency will release the figures the day after President Barack Obama is scheduled to accept the Democratic Party’s nomination for a second term. The state of the economy is at the center of the campaign, with Obama defending his record and Republican candidate for president Mitt Romney saying a change in leadership and policy is needed to spur the expansion and put more Americans back to work.
Economists had forecast that today’s ADP report, which is based on data from businesses with more than 21 million workers on payrolls, would show an increase of 140,000 private jobs in August, according to a Bloomberg survey.
Since April 2010, ADP’s initial estimate has either overstated or understated the Labor Department’s first reading on private payrolls by 69,000 on average. The average miss for the Bloomberg survey’s median forecast of economists was 58,000.
SERVICE SECTOR GAINS
A sustained pickup in service industries will help make up for three straight months of contraction in manufacturing and may create more employment opportunities.
The Tempe, Ariz.-based Institute for Supply Management today said its non-manufacturing index climbed to a three-month high of 53.7 from 52.6 in July. Readings above 50 signal expansion, and economists projected 52.5 for August, according to the median estimate in a Bloomberg survey.
The ISM services survey covers industries ranging from utilities and construction to health care and finance. The survey’s employment gauge rose to 53.8, the highest since April, from 49.3 in the prior month.
Stronger retail sales, along with a pickup in the housing market, have helped sustain growth in the services industry. In July, retail purchases advanced 0.8%, the most since February, Commerce Department data show. Auto demand has also fared well, with sales of cars and light trucks rising to an annual rate of 14.5 million in August, the best in three years.