A good start
Fewer layoffs, lower inflation give economy a lift
Published: Thursday, January 26, 2012 at 6:01 a.m.
Last Modified: Wednesday, January 25, 2012 at 1:58 p.m.
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 last 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, last Thursday's reports were encouraging:
Fewer people sought unemployment benefits recently 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.
JPMorgan Chase, the nation's largest bank, said its lending to businesses rose 12 percent in the October-December quarter compared with the same period a year earlier. Its lending to mid-size companies picked up. And at Bank of America, average loans to mid-size businesses grew 4 percent in the last three months of 2011. Tight credit has been a major reason why smaller businesses have been unable to expand and hire more.
The stock market has rallied in response to the news. The Dow Jones industrial average has reached its highest point since July.
A recovery hinges on strong job growth. Hiring was solid in the final six months of last year, capped by December's net increase of 200,000 jobs. The job market still has a long way to go before it fully recovers from the damage of the Great Recession, which wiped out 8.7 million jobs. More than 13 million people remain unemployed. Millions more have given up looking for work and so are no longer counted as unemployed.
And wages aren't keeping up with inflation. Average inflation-adjusted hourly earnings dropped 0.9 percent last year.