Economy Regains Momentum In November, Economists Say

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Hiring rebounded this month and manufacturers boosted production to fill holiday orders, signaling that the economy regained momentum after the Gulf Coast hurricanes, economists said in advance of reports this week.


Employers probably added 215,000 workers to payrolls in November, almost four times as many as in the previous month and the most since July, according to the median forecast in a Bloomberg News survey. A manufacturing index probably remained at a level showing faster economic growth.


A decline in energy prices has lifted consumer confidence, making retail industry analysts more optimistic about holiday sales. Gasoline prices have dropped 28% since reaching a record in September when Hurricanes Katrina and Rita disrupted fuel production. With inventories at record lows relative to sales and more orders coming in, production lines are going to be busy in coming months, economists said.


“This is a return to normalcy and that is especially good after what seemed like a much more serious event for the economy just a month or two ago,” the chief economist at National City Corporation in Cleveland, Richard DeKaser, said. “The pace of hiring has returned to the levels seen before Katrina and Rita and we are seeing a very solid rebound in manufacturing activity.”


The Labor Department issues its November employment report on December 2. The unemployment rate probably held at 5% for a second month, compared with a four-year low of 4.9% reached in August, accord to the survey median.


The Institute for Supply Management’s manufacturing index for November, which is due December 1, is projected to fall to 58 from 59.1, the survey showed.A reading of 50 is the dividing line between manufacturing growth and contraction. Readings similar to that forecast are consistent with economic growth in excess of 4%, the chief U.S. fixed income economist at Deutsche Bank Securities in New York, Joseph LaVorgna, said.


Such a growth pace this quarter would be as strong as last quarter’s, confirming the economy took record fuel prices in stride. The economy probably expanded at a 4% annual pace from July through September, faster than the 3.8% pace the government estimated last month, a revised report from the Commerce Department on November 30 will show, according to the survey median.


Orders for durable goods, those made to last several years, probably rose 1.5% in October, after a 2.4% decline in September, a Commerce Department report November 29 will show, according to the survey. Excluding transportation, which is volatile month to month, orders probably rose 1% in October after a 1.1% decrease.


A slump in automobile sales in October, after automakers stopped offering employee discounts to all customers, restrained consumer spending at the start of the fourth quarter, a report from the Commerce Department December 1 is expected to show.


Personal spending, which accounts for more than two-thirds of the economy, probably rose 0.2% in October after a 0.5% gain the previous month, according to the survey median.


Since then, consumer confidence has rebounded as gasoline prices fell. The Conference Board, a New York research group, is expected to report on November 29 that its confidence measure rose to 90 in November from 85 in October, the first increase in three months.


More confident consumers are likely to spend more this holiday season. The National Retail Federation last week said sales will increase 6%, up from an estimate of 5% two months ago, citing strong October gains in non-auto sales and the decline in gasoline prices.


“All the leading indicators we look at tell us we are going to have a strong retail season and that is certainly what we are planning for,” said Douglas Duncan, chief executive of FedEx Freight, a unit of FedEx, the second-largest American package-delivery company, in a November 23 interview. Mr. Duncan said FedEx Freight was hiring temporary workers and full-time employees were working overtime to keep up with the expected increase in shipments of holiday gifts.


Housing is one area of the economy that is now slowing as mortgage rates rise, economists said. Sales of previously owned homes, due to be reported by the National Association of Realtors today, dropped to a 7.2 million annual rate in October from 7.28 million the previous month, the survey showed.


A report from the Commerce Department a day later will show sales of new homes fell to a 1.2 million annual rate in October from 1.222 million in September.


Spending on all construction projects, public and private, probably rose 0.5% in October, matching the previous month’s increase, a December 1 report from the Commerce Department is projected to show.


“This economy isn’t just a housing economy – other parts are going to make up the difference,” an economist at Credit Suisse First Boston, Jonathan Basile, said. A slower pace of sales is “a healthy sign for the sustainability of the expansion.”


First-time claims for unemployment benefits in the week ended yesterday probably fell to 325,000 from 335,000 the previous week, according to the survey ahead of the Labor Department’s report.


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