Retail sales, factory orders swell

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Published: March 5,2010

Tags: factory orders, jobs, recession, retail

WASHINGTON — The economy is showing renewed strength as retail sales surged last month and factory orders also increased. Yet there’s little evidence such growth will lead to more hiring soon — unless recent gains in consumer spending force companies to add workers.

Retailers reported Thursday that sales rose in February by the largest amount since November 2007. And orders to U.S. factories in January posted their sharpest rise in four months. That was the best showing since September and another sign that manufacturing is helping drive the economic recovery.

Still, first-time claims for jobless benefits remain elevated. The Labor Department said initial claims for unemployment insurance fell by 29,000 to a seasonally adjusted 469,000 last week. But the drop only partly reverses a sharp rise in claims since the start of the year.

The four-week average of claims, which smooths out volatility, fell by 3,500 to 470,750. That’s still far above the 425,000 level that economists say claims need to fall below to signal hiring.

Initial jobless claims are considered a gauge of the pace of layoffs and an indication of companies’ willingness to hire new workers. They have been volatile in recent weeks, because last month’s severe snowstorms in the Eastern United States affected the data.

Claims rose sharply two weeks ago, partly because several states processed a backlog of claims that had built up from previous weeks when government offices closed due to bad weather. No states reported backlogs this week, a Labor Department analyst said.

“It might be another couple of weeks until we get a clear picture of where claims are settling in,” said Conrad DeQuadros, an economist at RDQ Economics.

In a sign that companies are raising output without adding many jobs, the department said in a separate report that productivity rose by 6.9 percent in the fourth quarter. That exceeded analysts’ expectations of a 6.3 percent rise.

Higher productivity, or output per hour worked, raises living standards in the long run. But it also lets companies get by with fewer workers.

A still-weak housing market is weighing on the recovery. The number of people who agreed to buy a home fell sharply in January. The report Thursday from the National Association of Realtors said demand for housing sank as stormy weather slammed Eastern states.

The weakness, however, was not confined to the wintry Northeast. The biggest month-to-month drop was in the West.

The NAR’s index is considered a gauge of future sales because typically there is a one- to two-month lag between a signed sales contract and a completed deal. The index has declined for two out of the past three months, in part because home shoppers feel less rushed after a deadline for a homebuyer tax credit was extended from Nov. 30 to April 30.

The weather wasn’t the only culprit, wrote Jennifer Lee, an economist with BMO Capital Markets. “The impact of government incentives … appears to be running out of steam, which is, frankly, a scary thought,” she wrote.

The strong retail-store sales report reflected solid gains from merchants ranging from luxury retailer Nordstrom to midbrow Macy’s Inc. to discounter Target Corp. reported solid sales gains.

“I am surprised by the broader strength” in the figures, said Mike Niemira, chief economist at the International Council of Shopping Centers. “Everyone is participating in this gain. And that’s a good sign for the retail sector and for the economy overall.”

The gains came despite weak reports recently on consumer confidence. And the Federal Reserve said in a report this week that the economy is growing, but too slowly to persuade companies to ramp up hiring. The jobs market “remained soft throughout the nation,” the Fed said Wednesday in a report known as the Beige Book.

The Labor Department will issue the February employment report Friday, and economists expect the unemployment rate rose to 9.8 percent from 9.7 percent and that employers cut a net total of 50,000 jobs. But the snowstorms likely inflated the job losses by up to 100,000, economists say.

High unemployment could slow the recovery if it reduces consumers’ ability to spend. The economy has lost 8.4 million jobs since the recession began. The Fed expects unemployment to average 9.5 percent to 9.7 percent this year.

In its report on jobless claims, Labor said the number of people continuing to claim jobless benefits fell more than expected to 4.5 million. But these so-called continuing claims don’t include millions of people who have used up their regular 26 weeks of benefits and are receiving extended benefits for up to 73 more weeks.

Nearly 5.9 million people were receiving extended benefits in the week ended Feb. 13, up from about 5.7 million the previous week. The data on extended benefits aren’t seasonally adjusted and are volatile from week to week.

The Senate on Tuesday approved legislation to extend those extended benefits through March, after Sen. Jim Bunning, a Kentucky Republican, dropped his objection. Bunning had argued the cost of the benefits should be paid for rather than added to the deficit.

The Senate is still working on legislation that would continue the extra benefits through the end of the year.

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