WASHINGTON (Reuters) - U.S. consumer spending in August rose at the fastest in nearly 8 years, but a weak labor market and the manufacturing sector's below forecast growth in September could hamper a nascent economic recovery.þþThe Commerce Department said on Thursday personal spending jumped 1.3 percent, the largest gain since October 2001, after a 0.3 percent increase in July. Spending was up for a fourth straight month and beat expectations for a 1.1 percent gain.þþOptimism over the rise in spending, which normally accounts for over two-thirds of U.S. economic activity, was clouded by reports showing a rise in the number of people applying for first-time unemployment benefits last week and a below forecast expansion in manufacturing activity last month.þþA report from the Labor Department showed initial claims for state unemployment insurance rose to a seasonally adjusted 551,000 last week from 534,000 in the previous week, more than analysts' expectations for 530,000.þþSeparately, the Institute for Supply Management said its index of national factory activity eased to 52.6 in September from 52.9 in August. The median forecast of 75 economists surveyed by Reuters was for a reading of 54.þþU.S. stock indexes extended losses after the manufacturing data, while U.S. Treasury debt prices pared gains. The U.S. dollar rose slightly against the euro.þþÿWhile the (ISM) number is above 50 and encouraging, there are concerns about manufacturing momentum,ÿ said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia.þþÿThe data suggests that manufacturing is trying to establish a new normal production level after cutting aggressively over the last 12 to 18 months.ÿþþPOSITIVE NEWS FROM HOUSINGþþStill there was positive news for the economy. Pending sales of existing homes rose sharply in August, for a seventh consecutive month of gains, data from a real estate trade group showed.þþThe National Association of Realtors Pending Home Sales Index, based on contracts signed, was up 6.4 percent to 103.8, the longest consecutive month-on-month gain in the history of the series, which began in 2001.þþThere are concerns that weak domestic spending could stall the economy's recovery from its worst recession in 70 years. While analysts agree the economy's healing has started, many worry that high unemployment and the resulting pressure on incomes might translate into a lethargic growth.þþGovernment data on Wednesday showed spending dropped at a 0.9 percent annual rate in the second quarter after rising 0.6 percent in the January-March period.þþPersonal income rose 0.2 percent in August after rising 0.2 percent in July, the Commerce Department said. This was a touch above market expectations for a 0.1 percent rise.þþReal disposable income inched up 0.1 percent in August. Savings declined for a third straight month. Savings slipped to an annual rate of $324.1 billion, with the saving rate easing to 3 percent from 4 percent in July.þþDespite the rise in weekly claims, the underlying trend remains toward gradual improvement in the labor market.þþThe four-week moving average of new claims fell to 548,000, the lowest since 547,000 reported in the week ending January 24, the Labor Department report showed.þþContinued claims of workers still collecting jobless aid after an initial week of benefits fell to 6.09 million in the week ending September 19 from a 6.16 million in the prior week. That was below market expectations for 6.16 million.þþThe Labor Department will release September's employment report on Friday. Analysts polled by Reuters expected nonfarm payrolls to have declined by 180,000 after dropping by 216,000 in August. They expect the unemployment rate to rise to a new 26-year high of 9.8 percent from 9.7 percent in August.þþÿThe labor markets remain the weak link in this recovery process. It will be a while before they provide any kind of support, especially to consumer spending,ÿ said Kevin Flanagan, fixed income strategist for Global Wealth Management at Morgan Stanley in Purchase, New York.þþSeparately, planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from August, global outplacement consultancy Challenger, Gray & Christmas said. September's layoff tally was 30 percent lower compared to the same period last year.þþ(Reporting by Lucia Mutikani, Emily Kaiser and Tom Ryan; Editing by Neil Stemplemanþ
Source: NY Times
