NEW US claims for jobless benefits fell more than expected last week to their lowest level in two months, offering cautious hope for an economic recovery that had shown signs of fatigue.
In addition, sales at retailers in June were up 3.1 per cent, largely in line with expectations and helped by promotions.
The data yesterday was a relief after a slew of weak reports had left investors fearing a double-dip recession.
“I think we are too quick in dismissing the potential for growth in the second half of the year, I don’t think it is going to be as weak as earlier thoughts had it,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York.
Initial claims for state unemployment benefits dropped 21,000 to 454,000 in the week ended July 3rd, the labour department said. Markets had expected a decline to just 460,000.
The department also said the number of people continuing to receive unemployment benefits in the final week of June was the lowest in seven months.
The report and June sales from several top domestic retailers gave investors some assurance the recovery from the longest and deepest recession since the 1930s remained on track. Stocks on Wall Street rose slightly, while prices for safe-haven government debt fell.
Concerns over the recovery were also calmed by the International Monetary Fund’s upgrading of US growth forecasts. However, the IMF said high unemployment and a distressed housing market were constraining growth, and it admitted data had turned weaker in recent weeks.
“The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses – along with elevated unemployment – are likely to continue to restrain private spending,” the fund said.
The IMF had earlier upgraded its 2010 global growth forecast yesterday, citing robust expansion in Asia and renewed US private demand, but warned the euro area’s debt crisis posed a big risk to recovery.
The IMF said the euro-zone’s sovereign financing problems and resulting financial market turbulence were significant challenges, especially with the web of financial and trade links connecting Europe to the world.
However, a double-dip world recession was highly unlikely.
The fund raised its 2010 global output forecast to 4.6 per cent from 4.2 per cent in April’s review of the global economy, but kept its 2011 view unchanged at 4.3 per cent.
The world economy shrank 0.6 per cent in 2009 as a result of the global financial crisis.
“What has happened in Europe is likely to slow down the path to recovery relative to what could have happened, but I think the chances of a double dip are very small, as you know we’re forecasting fairly strong growth for the world economy this year,” Olivier Blanchard, the IMF’s chief economist, said at a briefing in Hong Kong for the organisation’s latest World Economic Outlook and Global Financial Stability reports.
The euro fell 8 per cent in the second quarter of 2010, the largest quarterly decline since the first quarter of 2009, on fears that some European countries in the currency group may not be able to dig themselves out of their deep-debt holes.
The IMF focused the majority of both reports on the implications of the euro-zone sovereign crisis.
