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 The strengthening fundamentals were underscored by other data on
Thursday showing construction spending hit its highest level in
nearly five years in November.
"The underlying trends are pointing to the economy accelerating as
we move through the year. Conditions seem to be coming together for
a very good year," said Joel Naroff, chief economist at Naroff
Economic Advisors in Holland, Pennsylvania.
The Institute for Supply Management (ISM) said its index of national
factory activity stood at 57.0 last month. The index had climbed to
57.3 in November, the highest since April 2011.
A reading above 50 indicates expansion. With a gauge of new orders
hitting a 3-1/2-year high and inventories declining, manufacturing
activity is set to accelerate early in the year.
While manufacturing accounts for only about 12 percent of the
economy, it has been the key driver of recovery from the 2007-09
recession. Its continued show of strength is combining with
improving fortunes in other sectors of the economy to set a
foundation for sustained strong growth this year.
The brightening economic outlook prompted the Federal Reserve to
announce in December that it would reduce its monthly $85 billion
bond buying program by $10 billion starting this month.
A separate report from the Labor Department showed initial claims
for state unemployment benefits slipped 2,000 to a seasonally
adjusted 339,000 last week. It was the second straight week of
declines.
Though claims continue to be plagued by seasonal volatility,
economists said last week's decline was consistent with an
improvement in labor market conditions and was in line with other
indicators showing an acceleration in job growth.
A gauge of factory employment in the ISM survey last month touched
its highest level since June 2011. There has also been a significant
improvement in households' perceptions of labor market conditions.
"Jobless claims remain at a level consistent with improving labor
market conditions. We continue to expect a 215,000 increase in
nonfarm payrolls for December," said Laura Rosner, a U.S. economist
at BNP Paribas in New York.
Employers added 203,000 new jobs to their payrolls in November and
the unemployment rate fell 0.3 percentage point to 7 percent.
December nonfarm payrolls data will be released on January 10, with
the median of forecasts from analysts polled by Reuters calling for
193,000 new jobs last month.
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FIRING ON ALL CYLINDERS
From employment to consumer spending and industrial production, the
economy is showing remarkable strength, even as growth is expected
to slow considerably in the last three months of 2013 from the third
quarter's brisk 4.1 percent annual rate.
Much of the anticipated slowdown reflects a loss of output during a
16-day government shutdown in October and an unwinding of
inventories after businesses aggressively accumulated stock in the
July-September quarter.
The dollar was trading higher against a basket of currencies, while
prices for U.S. Treasuries were up. U.S. stocks fell as investors
booked profits after the Standard & Poor's 500 index recorded its
best yearly advance since 1997.
A third report from the Commerce Department showed construction
spending increased 1 percent in November to its highest level since
March 2009. It was the eighth straight month that construction
spending increased and reflected solid gains in private construction
outlays.
While the outlook for the economy is upbeat, there are some areas of
concern. Jobless benefits for more than a million long-term
unemployed Americans expired on December 28, which could hurt
consumer spending and also artificially lower the jobless rate.
The emergency unemployment compensation program was introduced in
2008 during the depths of recession, and had been extended every
year since then.
"The expiration of these benefits will leave 1.3 million workers
without benefits, potentially causing ripples through the entire
economy," said Jay Morelock, an economist at FTN Financial in New
York.
(Reporting by Lucia Mutikani; additional
reporting by Steven C Johnson in New York; editing by Andrea Ricci)
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