Small-Cap Investor Forum

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Unemployment Filings Fall to Nearly 4-Year Low

Unemployment filings unexpectedly fell to a four-year low last week, indicating that the labor market could be recovering. Other data from this month show solid expansion in factory activity in the Mid-Atlantic area. In January, builders broke more ground on new residential projects, offering more evidence of a sustained momentum in the economy.

The reports are the latest in a series of fairly upbeat data. Some think that the positive numbers could prompt economists to further temper expectations of a sharp moderation in growth in the first quarter. Similarly, economists have dialed down their expectations for another round of bond-buying or quantitative easing by the Federal Reserve.

“The numbers add to the belief that the economy is shifting gears. There is just no number that is giving us a whole lot of trouble, except for consumer spending,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Labor Department stated that initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 348,000, the lowest level since March 2008. Economists polled by Reuters had forecast claims rising to 365,000. The four-week average of new claims, seen as a better measure of labor market trends, was the lowest since April 2008.

Regarding activity at factories, factories in the region covering eastern Pennsylvania, southern New Jersey and Delaware generally increased hours for existing employees, which usually bodes well for wage growth.

“We are not seeing much indication that growth has slowed from the fourth quarter of 2011 to the first quarter of 2012,” said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh, Pennsylvania.

The Commerce Department reported that housing starts rose 1.5 percent to an annual rate of 699,000 units last month. Economists had predicted a pace of about 675,000 units. Multi-unit buildings boosted the starts, reflecting growing demand for rental apartments as Americans move away from homeownership. Permits for future home construction rose 0.7 percent to a 676,000-unit pace in January. Home building is expected to add to economic growth this year for the first time since 2005.