http://online.wsj.com/article/SB125915500754163841.htmlBy LUCA DI LEO and JEFF BATER
Consumer spending and incomes rose in October, while initial jobless claims fell under 500,000 last week to the lowest level since September of 2008, boding well for economic growth in the fourth quarter.
But demand for long-lasting goods unexpectedly fell in October, brought down by the defense sector, and a barometer of capital spending by businesses tumbled in another sign of the recovery's sluggishness.
Commerce Department data Wednesday showed spending last month rose by 0.7% compared with a September decline of 0.6%, while personal income rose by 0.2% for the second straight month.
Meantime, a key gauge of prices that is closely watched by the U.S. Federal Reserve to set monetary policy reiterated inflation wasn't a threat as the economy recovers slowly.
The core price index for personal consumption expenditures, which excludes volatile food and energy, rose a monthly 0.2% in October and by 1.4% year-on-year.
Economists surveyed by Dow Jones Newswires had forecast consumer spending would rise by 0.6% in October while income would increase by 0.1%. The core PCE index was seen rising by a monthly 0.1%.
The U.S. economy's rebound was softer than originally thought in the third quarter, the government said Tuesday in a revision to its gross domestic product estimate which showed less consumer spending than initially estimated.
U.S. GDP -- the broadest measure of output of goods and services -- grew at a 2.8% annual rate during the July to September period, less than the 3.5% rate calculated by the Commerce Department a month ago.
Consumer spending, which accounts for 70% of U.S. economic output, increased at a 2.9% annual rate during the third quarter -- less than the 3.4% estimated previously.
Wednesday's report was an encouraging sign for growth in the fourth quarter, since both consumer spending and incomes rose by more than expected in October.
Economists currently expect slightly better economic growth in the fourth quarter compared to the previous three months. One prominent forecaster, Macroeconomic Advisers, predicts GDP growth of 3.1%.
Personal income data for the previous months was revised up slightly. It rose by 0.2% in September and by 0.3% in August, the report showed, compared to previous estimates of a flat reading in September and a 0.1% increase the previous month.
Still, with more than 10% of the U.S. labor force out of work, the rise in incomes remains moderate.
Federal Reserve officials earlier this month raised their expectations for growth this year and in 2010, but predicted the recovery will be so slow that unemployment will remain high and inflation low until the end of next year.
As for price gauges in Wednesday's report, the price index for personal consumption expenditures excluding food and energy, year over year, rose 1.4%. The year-over-year gain in September was 1.3%.
The Fed watches this core PCE index closely for signs of inflation pressures. Fed officials see core inflation around 1.45% in 2009, 1.25% in 2010, and 1.3% in 2011.
On a monthly basis, Wednesday's report showed the core PCE index increased 0.2% in October compared to a 0.1% increase in September.
The PCE price index including food and energy prices rose 0.3% in October compared to September. It rose a monthly 0.1% in September. Year over year, the PCE price index was up 0.2% in October after falling 0.6% in September.
Jobless Claims Drop
In a glimmer of hope for the labor market, the number of U.S. workers filing new claims for jobless benefits last week fell to the lowest level since September of 2008. Total claims lasting more than one week, meanwhile, also decreased.
Initial claims for jobless benefits declined by 35,000 to 466,000 in the week ended Nov. 21, the Labor Department said in its weekly report Wednesday. The previous week's level was revised to 501,000 from 505,000. This represents the lowest figure for claims since September 13, 2008 and it is the first time initial claims have fallen below the 500,000 mark since early January, according to Labor Department data.
Last week's initial claims fell by more than economists expected. Economists surveyed by Dow Jones Newswires had predicted a decrease of 10,000 claims.
The four-week moving average of new claims, which aims to smooth volatility in the data, also fell by 16,500 to 496,500 from the previous week's revised average of 513,000. That is the lowest figure since November 8, 2008.
Economists widely expected initial claims would fall in Wednesday's report, and some believe that this the break away from the 500,000 mark will be sustained in the weeks to come.
"Taken as a whole, the labor market data for the US is suggesting we are in a gradual, steady improvement towards job growth at some point over the next three to six months and the decline in jobless claims is consistent with that," said Zach Pandl, an economist at Nomura Global Economics. "The trend has been very persistent since the end of August and we are expecting that to continue."
In the Labor Department's Wednesday report, the number of continuing claims -- those drawn by workers for more than one week in the week ended Nov. 14 -- declined by 190,000 to 5,423,000 from the preceding week's revised level of 5,613,000.
The unemployment rate for workers with unemployment insurance for the week ended Nov. 14 was 4.1%, a decrease of a 0.2 percentage point from the prior week's unrevised rate of 4.3%.
The largest increase in initial claims for the week ended Nov. 14 was in Florida due to layoffs in the construction, trade, service and manufacturing sectors. The largest decrease in initial claims occurred in California.
Jobless claims data is normally released by the Labor Department on Thursdays, but this week it came out a day early due to the Thanksgiving holiday.
