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Fewer layoffs, lower inflation lifts economy

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POSTED January 19, 2012 7:39 p.m.



 

WASHINGTON (AP) — The economy is off to a fast start in 2012.

The outlook for hiring has brightened as applications for unemployment benefits near a four-year low.

Adding to the optimism, inflation remains low, business travel is up and the home market is showing slight gains after three dismal years.

That's the picture sketched by a flurry of data Thursday. It followed other reports that show the economy began the year with vitality: Companies are hiring more, consumer confidence is up, more people are buying cars and factories are making more goods.

Even bank lending, which all but froze during the depths of the financial crisis, is on the rise.

Many economists caution that it's too early to conclude that the recovery is accelerating.

"There's no doubt that the economy is getting better; we just shouldn't get carried away," Mark Vitner, an economist at Wells Fargo, said. "We haven't shifted into a higher gear."

Despite six months of solid job growth, unemployment remains painfully high at 8.5 percent. And inflation-adjusted wages fell over the past year.

Housing is still slowing the economic recovery. And a recession in Europe would weaken growth in the United States and elsewhere.

Still, Thursday's reports were encouraging:

— Fewer people sought unemployment benefits last week than at any time in nearly four years. The seasonally adjusted drop was the steepest in more than six years. It reduced the week's total to just 352,000. The four-week average dropped to 379,000. When applications fall consistently below 375,000, it usually signals that hiring is strong enough to lower the unemployment rate.

— Manufacturing expanded in the Northeast in January, according to surveys by the Federal Reserve banks of New York and Philadelphia. That followed a report from the Fed that factory output across the country surged in December by the most in a year.

— Inflation appears to be peaking after surging last year. Consumer prices were unchanged in December, in part because gas is cheaper. Lower inflation gives consumers more spending power. It also gives the Fed leeway to keep interest rates low to help the economy.

— Spending on business travel rose 7.6 percent last year, the Global Business Travel Association said last week. More business travel benefits companies like Southwest Airlines, which reported higher fourth-quarter net income and revenue.

— Union Pacific Corp., the nation's largest rail operator, says it transported more cars, oil, industrial parts and chemicals in the final quarter of 2011. CEO Jim Young says he expects the railroad's revenue to continue growing in 2012

 

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