Consumers give U.S. economy a lift
WASHINGTON -- A flurry of data issued Thursday sketched a brightening view of the U.S. economy in the final days before a presidential election that will pivot on the strength of the recovery.
Cheaper gas, rising home prices and lower unemployment have given consumers the confidence to spend more. And retailers, auto dealers and manufacturers are benefiting.
At the same time, many employers remain anxious about the economy, which is why only modest hiring gains are forecast for Friday’s jobs report for October. It will be the last major report on the economy before Election Day.
Both presidential candidates pressed their arguments Thursday for why President Barack Obama’s economic stewardship should or should not earn him another four-year term. Campaigning in Roanoke, Va., Mitt Romney argued that under Obama, household incomes have fallen behind inflation and poverty has worsened.
Obama, in a speech in Green Bay, Wis., contended that Romney’s proposals are the same "top-down policies that crashed our economy." The president said his own economic approach was similar to Bill Clinton’s in the 1990s, when the U.S. economy generated tens of millions of jobs and incomes surged.
Here’s what the reports issued Thursday showed about the state of the U.S. economy:
Americans have taken heart from recent declines in the unemployment rate. They appear increasingly confident that the economy can sustain its modest recovery. That’s translating into more consumer spending -- the fuel of U.S. economic growth -- even though businesses have pulled back and exports have slowed.
Consumer confidence jumped last month. The Conference Board index of confidence reached 72.2, its highest since February 2008, two months into the Great Recession.
The index is still below the level of 90 that’s consistent with a healthy economy. But it’s up from 40.9 a year ago -- the sharpest one-year increase since 1994, according to Robert Kavcic, an economist at BMO Capital Markets. And the index is far above its all-time low of 25.3 in February 2009, in the midst of the financial crisis.
Consumers are also spending more at retail stores, a separate report showed Thursday. Sales in stores open at least a year rose 5 percent in October, according to a tally from 21 retail chains by the International Council of Shopping Centers. Some of the increase, though, might reflect higher spending for generators, batteries, water and other supplies in preparation for Superstorm Sandy.
Job growth will likely remain modest. Most companies are reluctant to make major investments in hiring or equipment, economists say.
Economists have forecast that employers added 121,000 jobs last month -- too slow a hiring pace to drive down the unemployment rate quickly. The rate has declined in recent months in part because some people have given up looking for work.
Applications for unemployment benefits fell 9,000 to 363,000 last week, the Labor Department said Thursday. That level suggests that hiring is unlikely to pick up much from its current pace of about 150,000 jobs a month.
A report by payroll provider ADP showed that private companies added 158,000 jobs in October, up from 114,000 in September. ADP updated its methodology for the October report. It has frequently diverged sharply from the government’s figures.
The U.S. economy expanded at a 2 percent annual pace in the July-September quarter, up from 1.3 percent in the second quarter. Most economists expect growth may slow a bit in the fourth quarter, partly because of disruptions from Superstorm Sandy.
Still, the economy is growing too slowly to bring rapid relief to roughly 12 million out-of-work Americans. With the unemployment rate still high, steady growth of more than 3 percent is generally needed to create a sufficient number of jobs.
Americans are buying more big-ticket items, like cars and appliances. Auto companies reported steady sales gains last month despite losing three days of business to the storm in heavily populated areas of the Northeast.
Toyota said its sales rose nearly 16 percent for the month. Volkswagen reported a 22 percent jump. Honda’s sales gained 8.8 percent. Chrysler’s sales rose 10 percent, General Motors’ 5 percent and Ford’s less than 1 percent.
Steady consumer spending is supporting gains in U.S. factory production. That’s true even though businesses in the United States and overseas have reduced their demand for high-cost manufactured goods.
The Institute for Supply Management, a private trade group, said its index of factory activity ticked up to 51.7 in October from 51.5, slightly below the average for the past year of 52.2. A reading above 50 indicates expansion.
The ISM said new orders and production rose. The increase came mainly in consumer-oriented industries such as furniture, food and beverages, and computers. Demand for machinery, chemical products, steel and other metals fell.
U.S. businesses have become more cautious in recent months. Some are concerned that Congress will fail to reach a budget deal before January. If lawmakers can’t strike an agreement, sharp tax increases and spending cuts will take effect next year and could trigger another recession.
Many American companies are also nervous about the economic outlook overseas. Europe’s financial crisis has pushed much of that region into recession and cut into U.S. exports and corporate profits.
In a rare dose of healthy news for the global economy, China’s manufacturing improved in October, two business surveys showed Thursday. The world’s second-largest economy may be recovering from its deepest slump since the 2008 global crisis.
Analysts expect China’s growth to strengthen this quarter. But they caution that the rebound will be too weak to drive a global recovery without improvement in the United States and Europe.
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