Jobless Claims Drop Again; GDP Growth Slows to 1.8%

December 23, 2011

By Reuters

U.S. economic growth was slower than previously estimated in the third quarter on a sharp drop in healthcare spending, but stronger business investment and a fall in inventories pointed to a pickup in output in the current period.

Jobless claims, meanwhile, posted another weekly drop in another sign that the thawing of the labor market is progressing. The fall to 364,000 was the lowest level in more than three years.

Gross domestic product grew at a 1.8 percent annual rate in the third quarter, the Commerce Department said in its final estimate on Thursday, down from the previously estimated 2 percent.

Economists had expected growth to be unrevised at 2 percent. Though spending on healthcare dropped by $2.2 billion, spending on durable goods was stronger than previously estimated, indicating household appetite to consume remains healthy.

Healthcare spending had previously been reported to have increased at a $19.7 billion rate. Healthcare spending subtracted about 0.1 percentage point from the GDP change in the final revision, whereas the previous estimate had it adding 0.61 percentage point to growth.

Even as much of the rest of the world is slowing down and a mild recession is forecast in Europe next year, the U.S. economy remains resilient.

The labor market is improving, households continue to spend, home building is picking up and factory output is expanding, putting the economy on course for at least a 3 percent growth pace in the fourth quarter.

That would be the fastest pace in 18 months.

The number of people applying for unemployment benefits dropped last week to its lowest level since April 2008, extending a downward trend that shows the job market strengthening.

The Labor Department says new applications for unemployment benefits fell last week by 4,000. It was the third straight weekly decrease. The four-week moving average, a less volatile measure, dropped to 380,250, the lowest since June 2008. The average has decreased in 11 of the past 13 weeks.

Unemployment applications are a measure of the pace of layoffs. Job cuts have fallen sharply since the recession, though employers have been slow to start hiring. The four-week average is falling near 375,000 — a pace that usually signals that hiring is strong enough to reduce the unemployment rate.

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