Saturday 16th of January 2021

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Economic Recovery May Be Here To Stay

Fewer claims for unemployment. More people shopping. Home sales climbing. All this good news in one week has caused some economists to say an economic recovery, while not quite strong as everyone would like, is starting to take hold.

Don’t interpret that conclusion to mean the unemployment rate is ready to fall because it still may creep up from 10.2 percent to as high as 11 percent. Still, the fear of a “double dip” recession seems to be subsiding.

The Labor Department reported the total unemployment insurance filings by those people who were the most recently laid off was 466,000 last week, a drop of 35,000 from the week before. That was the smallest number of new filings since September 2008.

While the pace of layoffs may be slowing, companies aren’t quite ready to do massive hiring. In fact, a decrease in unemployment claims would have to be sustained at about the 400,000 level for several weeks before job growth can be declared.

Last month there were more consumers opening their wallets, according to the Commerce Department. After falling 0.6 percent in September, consumer spending increased 0.7 percent in October. That was the highest increase since the 1.3 percent spike that occurred in August when people were buying cars to benefit from the Cash for Clunkers rebate.

Even more impressive is the increase happened in a climate of high consumer debt, tighter credit and a high jobless rate. If the consumer spending can stay strong, holiday sales could beat last year’s, which were the worst in nearly 40 years.

New home sales last month also were up to their best level in more than a year. Leading the way was the South, offsetting sales decreases in the other regions. Much of the action was due to buyers trying to act before the expected expiration of the tax credit of up to $8,000 for anyone buying a first home. This month that program was extended plus expanded to include people who already had a home.

For the second month in a row, incomes increased 0.2 percent. While wages and salaries stayed at the same level, the increase was attributed to bonuses and other benefits, interest and other income types.

With spending increasing at a faster rate than incomes, Americans are saving a smaller percentage of their after-tax income. A savings rate of 4.6 percent in September fell to 4.4 in October.

Before the celebrations about spending increases start, some analysts don’t expect it to continue in the rest of the quarter. In fact, there is concern spending will slow in early 2010.
Some sectors already have pulled back on spending as orders for more expensive manufactured goods decreased in October. A major cause was less demand for goods tied to defense.