The number of Americans filing new claims for unemployment aid hit a five-year low last week and residential construction surged in December, the latest signs of underlying strength in the economy.
Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said. It was the largest weekly drop since February 2010 and ended four straight weeks of increases.
The drop might not signal a material shift in labor market conditions as claims tend to be very volatile around this time of the year. This is because of large swings in the model used by the department to iron out seasonal fluctuations.
"Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year," said John Ryding, chief economist at RDQ Economics in New York.
A separate report from the Commerce Department showed housing starts jumped 12.1 percent last month to their highest level since June 2008. Permits for future home construction were also the highest in about 4-1/2 years.
While warm weather likely helped, the data was confirmation of the improving housing market tone, and gains in home building were across all four regions. Housing is no longer a drag on the economy and residential construction is expected to have contributed to growth last year for the first time since 2005.
It is expected to be the key driver this year. The reports came on the heels of data this week showing solid retail sales and manufacturing growth in December.
"This has been a great week for economic news," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
OUTLOOK STILL SHAKY
The fairly upbeat data helped to lift U.S. stocks to a five-year high. U.S. Treasury debt prices fell and the dollar was marginally weaker against a basket of currencies.
But the outlook for the economy remains shaky. A third report showed factory activity in the U.S. mid-Atlantic region contracted this month as new orders tumbled, pointing to a slowdown in manufacturing activity.
The Philadelphia Federal Reserve Bank said its business activity index fell to -5.8 from 4.6 in December. A reading below zero indicates contraction in manufacturing in eastern Pennsylvania, southern New Jersey and Delaware.
"Manufacturing has slowed but it's still growing. I'm not going to read too much into this until I see other regional surveys," said