U.S. factory activity advanced at its fastest pace in nearly two years this month and the number of Americans filing new claims for jobless benefits hit a five-year low last week, providing surprisingly strong signals on the economy’s pulse.
Financial information firm Markit on Thursday said its preliminary manufacturing Purchasing Managers Index rose to 56.1 in January, its best showing since March 2011. It stood at 54.0 last month. A reading above 50 indicates expansion.
A separate report from the Labor Department showed initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 330,000, the lowest since January 2008, in the early days of the 2007-2009 recession.
“The economy’s doing better,” said Michael Strauss, an economist at Commonfund in Wilton, Connecticut.
Analysts polled by Reuters had expected Markit’s “flash” factory gauge to slip to 53.0 and looked for claims to rise to 355,000.
Economists have cautioned about reading too deeply into this month’s figures on jobless claims, which tend to be volatile around this time of the year because of large swings in the model the government uses to iron out seasonal fluctuations.
Still, claims have fallen for two straight weeks, suggesting employers do not yet see tax hikes enacted this month as a big threat to consumer demand.
A four-week moving average for new claims, meant to provide a better sense of underlying trends, fell 8,250 to 351,750, the lowest since March 2008.
The data helped the U.S. dollar extend gains versus the yen , while U.S. Treasury debt prices pared gains.
Claims are now at roughly the same level they were in much of 2006 and 2007. They started trending higher around December 2007, the month that the recession began.
However, while employers have pulled back on layoffs, they have only added jobs to the economy at a lackluster pace.
Analysts polled by Reuters expect an employment report due on Feb. 1 will show 165,000 jobs were added to payrolls this month, up from 155,000 new positions in December. The unemployment rate is expected to hold steady at 7.8 per cent.
Like the claims data, Markit’s factory report also offered support for the idea that labor market recovery was gaining traction with new jobs in the sector being created at the fastest pace in nine months.
A Markit subindex showed factory output grew at its fastest pace since March 2012, while new orders also rose. The new orders gauge hit 57.7, its highest level since May 2010.
Improved economic conditions in China and some parts of Europe helped boost orders from abroad, but firms largely tied the growth surge to higher demand from U.S. customers.
“It is the domestic market that is clearly providing the main impetus to the upturn,” said Markit chief economist Chris Williamson.
Aggressive monetary stimulus from the Federal Reserve and a last-minute deal by Congress to avoid a year-end budget crisis and a large rise in taxes gave a boost to business confidence, Williamson said.