Solid job mar­ket, ris­ing pay rev up US econ­omy Signs of steady growth as busi­ness spend­ing re­bounds

Kuwait Times - - BUSINESS -

WASH­ING­TON: Amer­i­cans’ pay is up, fewer peo­ple need un­em­ploy­ment aid, more are buy­ing new homes and busi­ness spend­ing is re­bound­ing. A flurry of data re­leased sig­naled that the fun­da­men­tals of the US econ­omy re­main solid, if un­spec­tac­u­lar, three weeks be­fore the Fed­eral Re­serve will likely be­gin rais­ing in­ter­est rates.

Con­sumers ap­pear rel­a­tively con­fi­dent in the econ­omy and may be poised to spend a de­cent chunk of their ris­ing in­comes dur­ing the hol­i­day shop­ping sea­son. In ad­di­tion, busi­nesses are step­ping up their in­vest­ment in ma­chin­ery and equip­ment, re­mov­ing a per­sis­tent drag on the econ­omy. The steady con­sumer and busi­ness de­mand in the United States is pow­er­ing the econ­omy through eco­nomic pres­sures from over­seas, which jolted fi­nan­cial mar­kets dur­ing Au­gust and Septem­ber and raised doubts about global growth.

With the US job mar­ket on solid foot­ing and wages be­gin­ning to rise, the Fed is widely ex­pected to raise short-term rates in mid-De­cem­ber for the first time in nine years. Wages and salaries jumped 0.6 per­cent in Oc­to­ber, the Commerce Depart­ment said Wed­nes­day, and data for the spring and sum­mer was re­vised sub­stan­tially higher. US pay­checks were 4.9 per­cent higher in Oc­to­ber than they were a year ear­lier, a siz­able gain. By con­trast, in the first four years af­ter the Great Re­ces­sion ended in 2009, pay­checks typ­i­cally rose only about 2 per­cent to 3 per­cent.

“The ex­tra growth in wage in­come is good news for re­tail­ers hop­ing for a strong hol­i­day shop­ping sea­son,” said Jim O’Sul­li­van, chief US econ­o­mist at High Fre­quency Eco­nomics.

O’Sul­li­van fore­casts that the econ­omy’s an­nual growth rate could reach 2.7 per­cent in the fi­nal three months of the year, from 2.1 per­cent in the third quar­ter.

Con­sumer spend­ing rose only 0.1 per­cent in Oc­to­ber, though that weak show­ing occurred partly be­cause the month was un­usu­ally warm and Amer­i­cans paid less for heat. In the sec­ond and third quar­ters, con­sumer spend­ing topped 3 per­cent, a his­tor­i­cally ro­bust level.

With in­comes re­vised higher, the sav­ings rate jumped last month to 5.6 per­cent, the high­est since 2012. “History tells us that a chunk of that sav­ings will even­tu­ally get spent,” said Stephen Stan­ley, chief econ­o­mist at Amherst Pier­pont.

Mea­sures of con­sumer con­fi­dence have been mixed but gen­er­ally paint an op­ti­mistic pic­ture. Ac­cord­ing to Gallup, Amer­i­cans plan to spend on av­er­age $830 on hol­i­day shop­ping this win­ter - the most since 2007, just be­fore the re­ces­sion of­fi­cially be­gan.

And con­sumer sen­ti­ment ticked up this month, ac­cord­ing to a sur­vey by the Univer­sity of Michi­gan. Lower and mid­dle-in­come Amer­i­cans were more op­ti­mistic about their per­sonal fi­nances in the com­ing year than higher-in­come house­holds were, the sur­vey found. Still, a sep­a­rate mea­sure of con­sumer con­fi­dence from the Con­fer­ence Board, a busi­ness re­search group, fell in Novem­ber to its low­est point in more than a year. It found that fewer Amer­i­cans ex­pected their in­comes to rise.

Even so, Amer­i­cans are un­leash­ing pent-up de­mand for big-ticket items such as homes and cars. Sales of new homes jumped last month and have in­creased 15.7 per­cent through the first 10 months of 2015. Home sales have been bol­stered by strong hir­ing and low mort­gage rates. Sales of ex­ist­ing homes are on track to reach their high­est level since 2007, even though ris­ing prices are sidelin­ing many po­ten­tial buy­ers.

Separately, US fac­to­ries in Oc­to­ber re­ceived more or­ders for long-last­ing goods, in­clud­ing steel, ma­chin­ery and com­put­ers. The in­crease added to other ev­i­dence that man­u­fac­tur­ing is re­cov­er­ing af­ter a gen­er­ally bru­tal year. A higher-val­ued dol­lar has made US goods more ex­pen­sive over­seas.

And fac­tory out­put has also been held back by low oil prices, which forced oil and gas drillers to slash or­ders for steel pipe and other equip­ment.

Now, though, those drags ap­pear to be fad­ing. Con­sis­tent hir­ing has un­der­pinned most of the im­prove­ment in the econ­omy this year. Em­ploy­ers added 271,000 jobs in Oc­to­ber, the most since last De­cem­ber, and the un­em­ploy­ment rate reached 5 per­cent, the low­est level since the spring of 2008. Solid job gains are likely to con­tinue, at least judg­ing from how few peo­ple are los­ing jobs. The num­ber of peo­ple seek­ing un­em­ploy­ment ben­e­fits, which gen­er­ally mir­rors the pace of lay­offs, fell to nearly 40-year lows last week.

Year-over-year in­fla­tion, which had re­mained stub­bornly be­low the Fed’s tar­get rate, has now reached 1.7 per­cent ac­cord­ing to a mea­sure com­piled by the Fed­eral Re­serve Bank of Dal­las. That’s not far from the Fed’s 2 per­cent tar­get. And Amer­i­cans ex­pect slightly higher in­fla­tion in com­ing months, ac­cord­ing to the Univer­sity of Michi­gan’s sur­vey. That could bol­ster the case for the Fed to raise rates at its next meet­ing. — AP

LOS AN­GE­LES: Best Buy staff load a tele­vi­sion dur­ing a Black Fri­day sale in Los An­ge­les, Cal­i­for­nia on Fri­day. — AFP

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