Data Suggest Economy Picking Up Steam After Weak 1Q

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By Lucia Mutikani

WASHINGTON -- The number of Americans filing new claims for jobless benefits tumbled to a 15-year low last week and consumer spending rose in March, signs the economy was regaining momentum after stumbling badly in the first quarter.

The economic outlook was brightened further by another report Thursday showing a solid increase in wages in the first quarter, which should keep the Federal Reserve on track to raise interest rates this year.

%VIRTUAL-pullquote-This morning's reports all point to an economy that is doing a lot better than the near-stagnation in first-quarter GDP suggests.%"This morning's reports all point to an economy that is doing a lot better than the near-stagnation in first-quarter GDP suggests," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Initial claims for state unemployment benefits fell 34,000 to a seasonally adjusted 262,000 for the week ended April 25, the lowest reading since April 2000, the Labor Department said.

Though the decline, which far exceeded Wall Street's expectations for a drop to 290,000, likely exaggerates the labor market's health, it bolstered views that March's sharp moderation in job growth was probably an aberration.

Separately, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4 percent last month as households stepped up purchases of big-ticket items like automobiles.

The increase followed a 0.2 percent gain in February and indicated that consumer spending picked up momentum at the end of the first quarter, which bodes well for consumption in the April-June period.

While that should boost growth in the second quarter, the rebound in economic activity could be crimped by an inventory overhang, a strong dollar and ongoing spending cuts in the energy sector, which has been hit by lower oil prices.

Another report showed that factory activity in the Midwest accelerated in April, pushing further away from a 5½-year low hit in February.

The Institute for Supply Management-Chicago's business barometer rose to 52.3 from a March reading of 46.3. A reading above 50 indicates an expansion in the region's factory sector.

Stocks on Wall Street fell despite the fairly upbeat economic data, as Colgate-Palmolive cut its full-year profit forecast for the second time because of the buoyant dollar.

Sentiment was also hurt as ConocoPhillips (COP), the largest independent U.S. energy company, reported that its first-quarter profit fell to $272 million from $2.1 billion a year earlier due to lower crude prices.

Prices for U.S. government debt fell, with the yield on benchmark 10-year Treasury notes touching near a seven-week high. The dollar slipped against a basket of currencies.

Wages Accelerating

When adjusted for inflation, consumer spending rose 0.3 percent in March after being flat in the prior month.

The economy slowed to a crawl in the first quarter as it struggled with severe winter weather, a now-settled labor dispute at normally busy West Coast ports, the strong dollar and lower energy prices, which have cut into domestic oil production.

The Fed acknowledged Wednesday the first quarter's sharp growth moderation, but dismissed it as partly the result of transitory factors.

Spending last month picked up despite personal income being flat. But the income weakness will likely prove temporary as the labor market gradually tightens.

In a fourth report, the Labor Department said the Employment Cost Index, the broadest measure of labor costs, advanced 0.7 percent after a 0.5 percent rise in the fourth quarter.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack.

In the 12 months through March, labor costs jumped 2.6 percent, the largest rise since the fourth quarter of 2008. They are approaching the 3 percent threshold that economists say is needed to bring inflation closer to the Fed's 2 percent target.

Private sector wages and salaries increased 0.7 percent after gaining 0.5 percent in the prior quarter. They rose 2.8 percent in the 12 months through March, the biggest gain since the third quarter of 2008.

"The conditions seem to be in place for labor costs to start breaking out on the upside, and that would be enough to provide the Fed with the confidence that the inflation target will be reached," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

9 Numbers That'll Tell You How the Economy's Really Doing
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Data Suggest Economy Picking Up Steam After Weak 1Q
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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