The report this morning from the U.S. Department of Labor says 364,000 initial claims for unemployment benefits were filed last week, a decrease of 4,000 from the week before and 59,000 fewer than the same week last year. It’s the third consecutive weekly drop. (Numbers are seasonally adjusted.)
A Reuters poll of economists in advance of this morning’s release predicted the number of new claims would rise to 375,000. The lower-than-expected number helped get stocks off to a strong start this morning despite a Commerce Department report that the third quarter GDP grew at a revised 1.8 percent rate. Previously, the rate had been estimated at 2 percent. Economists were expecting the 2 percent growth rate to stand.
However, there were other positive economic reports. The Thomson Reuters University of Michigan consumer sentiment rose to 69.9 points in December from November’s 64.1, besting expectations it would only reach 68. The index is derived from monthly surveys of consumers nationwide.
The report noted that, “Good times economically were expected in 2012 by 29 percent (of consumers) in December, up from 19 percent in November and the recent low of 14 percent in August. While more consumers heard news of employment gains in December, they didn’t expect that those gains would have much impact on the national unemployment rate in the months ahead.”
However, the survey measures were below last year’s levels and consumers reported being worried about their personal finances. That prompted surveys chief economist Richard Curtin to warn, “If the payroll tax holiday is not extended, it would be a significant drag on economic growth, and would increase the likelihood that weakness in consumer spending would again put the economy at risk of a renewed downturn.”
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With Congress stalemated over extending the payroll tax cut, business associations are warning that hiring plans are beginning to be put on hold. The International Franchise Association said this week that failing to extend the cut will “jeopardize the creation of 168,000 new jobs” next year.
If there’s no action by the end of the year, workers will see fewer dollars in their first paychecks of 2012, at just the time bills for their holiday shopping begin to roll in. For workers earning $50,000 annually, it would mean about $19 a week less take home pay.
Much of the attention has been focused on the impact of ending the 2 percent savings on Social Security taxes that has been in effect for a year; without a break in the impasse, some 2.6 million Americans could lose their unemployment benefits. CNN/Money says that by mid-January, nearly 700,000 would lose benefits, which average $300 weekly. By March 3, the number rises to 2.6 million, according to White House estimates.