U.S. Economy: Jobless Claims Fall, Leading Index Up

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Feb. 19 (Bloomberg) -- The number of Americans filing initial unemployment claims fell last week and an index of leading economic indicators rose for a 10th month in January, suggesting stronger growth may help hiring. A Federal Reserve report showed a record percentage of Philadelphia-area factories were lengthening their work weeks.

Initial applications fell to 344,000 in the week ended Saturday from 368,000 a week earlier, the Labor Department said. The New York-based Conference Board's index of leading economic indicators rose 0.5 percent last month after a 0.2 percent rise.

The work-week measure was included with the Fed Bank of Philadelphia's factory index, which was the second-highest in a decade even after falling more than economists forecast. The overall index fell to 31.4 in February from 38.8 in January as orders and shipments slowed. The work-week index rose to 23.6, the highest since record keeping began in 1968.

```The message is that employers remain somewhat reluctant to expand payrolls, but are only avoiding new hires by pressing the limits of the work week,'' said James O'Sullivan, senior economist at UBS Securities in New York. ``Because the work week theoretically cannot be expanded without limit, this trend should give way eventually to more job creation.''

The economy may grow as fast as 4.5 percent this year, the most since 1999, a survey of 70 corporate officers by the Business Council showed yesterday. More than 40 percent of the executives said they expect to increase payrolls in 2004, following three straight years in which productivity gains outpaced economic growth and limited the need for hiring.

Last Six Months of 2003

The Business Council is an invitation-only group of 121 chief executives from Fortune 500 companies, including General Electric Co. and DuPont Co.

Economic growth averaged 6.1 percent at an annual rate in the last six months of 2003, the fastest since 1984. Monthly job growth, which lifts incomes and spending, has averaged about 73,000 since September. The U.S. has lost 2.3 million jobs during President George W. Bush's term.

The string of increases in the leading indicators index was the longest since 1983 and led by rising consumer expectations and higher stock prices. Five of the 10 indicators the Conference Board uses to derive the index contributed to the rise. Increases in weekly factory hours, slower vendor delivery times that suggest increased demand and a decline in claims for jobless benefits also boosted the index.

Weather

The drop in jobless claims last week reflected declines in the states that had reported weather-related increases in the previous two weeks, the Labor Department said. Economists had expected claims would drop to 355,000, based on the median of 39 forecasts in a Bloomberg News survey, from the 363,000 initially reported for the week earlier.

Economists had estimated that the Philadelphia Fed index would slip to 35, based on the median of 50 forecasts, U.S. Treasuries erased losses after the report.

The Treasury's 4 percent note due in February 2014 rose 1/16 point, pushing down its yield 1 basis point to 4.04 percent at 2:15 p.m. New York time. February still was the ninth consecutive month the Philadelphia index was higher than zero, indicating expansion, and the first time since 1984 with three straight months over 30.

The Philadelphia region comprises Delaware, eastern Pennsylvania and southern New Jersey. Economists and investors watch the report for clues about the performance of nationwide manufacturing, which accounts for one-seventh of the economy.

Wal-Mart

More than half of the 70 corporate officials who responded to the Business Council survey said they shifted U.S. employment overseas over the past year. Fifty-six percent said they felt that ``exceptionally strong productivity growth had allowed them to boost production without having to hire more workers,'' the survey said.

Sidney Taurel, chief executive at Eli Lilly & Co., said in an interview he's ``optimistic that if we have several quarter of sustained growth in the economy, you cannot but create jobs. Maybe not at the same pace as the economy is growing but I'm convinced a year from now we'll have many more jobs.''

Wal-Mart Stores Inc., the world's largest retailer, said fourth-quarter profit increased 8.5 percent and earnings may be higher than forecast this year. Chief Executive H. Lee Scott said on a recorded message that he is ``personally more optimistic about the year we have just started than I have been in several years. I'm encouraged by consumer spending, particularly driven, I think, by the higher tax refund.''

Demand

That optimism is shared by Michael Splinter, chief executive at Applied Materials Inc., the world's biggest maker of computer- chip production equipment. ``Consumer electronics, IT spending has just started,'' Splinter said in an interview. ``So when the demand cycle will end is really hard to say but I don't think it's really on the horizon right now.''

Bush yesterday backed off an administration forecast that 2.6 million jobs would be created this year, although he said at the White House that he expects the economy to ``get stronger.''

Last week marked the first decrease in jobless claims since the week ended Jan. 24, when the number fell to 339,000 and matched the lowest since January 2001. Today's report corresponds to the week the Labor Department surveys households and businesses to calculate its monthly employment figures for February.

The four-week moving average of claims, a less-volatile indicator, rose to 352,000 from 351,750, the Labor Department said.

Productivity

The number of people continuing to collect state jobless benefits jumped to 3.186 million, the highest this year, in the week that ended Feb. 7 from 3.080 million a week earlier.

The insured employment rate, which tends to track the U.S. jobless rate, increased to 2.5 percent in the week ended Feb. 7 from 2.4 percent.

Since record keeping began in 1947, productivity gains have never outstripped gross domestic product when growth was faster than 4 percent, Labor and Commerce Department statistics show.

Productivity, or how much is produced for each hour worked, rose an average of 3.7 percent from 2001 to 2003, almost twice the economy's average 1.9 percent rate of expansion over the same period.

``To a surprising degree, firms seem able to continue identifying and implementing new efficiencies in their production processes and thus have found it possible so far to meet increasing orders without stepping up hiring,'' Fed Chairman Alan Greenspan, told Congress last week.

Hiring a `Little Bit'

``As those opportunities to enhance efficiency become scarcer and as managers become more confident in the durability of the expansion, firms will surely once again add to their payrolls,'' Greenspan said.

Some businesses are still trying to streamline their operations.

``We're being cautious like a lot of other companies in terms of spending and hiring,'' Ned Barnholt, chief executive of Palo Alto, California-based Agilent Technologies Inc., the world's biggest maker of scientific test gear, said in an interview yesterday. ``We're expecting a little bit of hiring this year, but the net effect is we won't add dramatically, if at all.''



To contact the reporter on this story:
Carlos Torres in Washington ctorres2@bloomberg.net.

To contact the editor on this story:
Kevin Miller at kmiller@bloomberg.net.

[cycloneye]

If in the next 10 months those same reports come out then Bush will remain in the white house for 4 more years.

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media not interested. bush is getting plastered about jobs