U.S. consumer spending rose at its fastest pace in nearly 8 years in August, but the number of workers filing new claims for jobless benefits rose last week, indicating a weak labor market would weigh on recovery.
The Commerce Department said on Thursday spending jumped 1.3 percent, the largest gain since October 2001, after a revised 0.3 percent increase in July. Spending was up for a fourth straight month.
Economists had expected a 1.1 percent gain in spending, which normally accounts for over two-thirds of U.S. economic activity. Adjusted for inflation, spending rose 0.9 percent in August, also the largest increase since October 2001, after rising 0.2 percent.
A separate report from the Labor Department showed initial claims for state unemployment insurance rose to a seasonally adjusted 551,000 last week from 534,000 in the previous week, more than analysts' expectations for 530,000.
Although we have seen improvements in the monthly statistics, the labor markets remain the weak link in this recovery process. It will be a while before they provide any kind of support, especially to consumer spending, said Kevin Flanagan, fixed income strategist for Global Wealth Management at Morgan Stanley in Purchase, New York.
U.S. stock index futures extended losses as investors focused on the jobless claims report, while U.S. Treasury debt prices added to gains.
There are concerns that weak domestic consumption could stall the economy's nascent recovery from its worst recession in 70 years. While analysts agree the economy's healing has started, many worry that high unemployment and the resulting pressure on incomes might translate into a lethargic growth.
Government data on Wednesday showed spending dropped at a 0.9 percent annual rate in the second quarter after rising 0.6 percent in the January-March period.
Personal income rose 0.2 percent in August after rising 0.2 percent in July, the Commerce Department said. This was a touch above market expectations for a 0.1 percent rise.
Real disposable income inched up 0.1 percent in August. Savings declined for a third straight month. Savings slipped to an annual rate of $324.1 billion, with the saving rate easing to 3 percent from 4 percent in July.
A measure of inflation closely watched by the Federal Reserve, the year-on-year personal consumption expenditures index excluding food and energy slowed to 1.3 percent after a 1.4 percent increase in July.
Despite the rise in weekly claims, the underlying trend remains toward gradual improvement in the labor market.
The four-week moving average of new claims fell to 548,000, the lowest since 547,000 reported in the week ending January 24, the Labor Department report showed.
Continued claims of workers still collecting jobless aid after an initial week of benefits fell to 6.09 million in the week ending September 19 from a revised 6.16 million in the prior week. Analysts were expecting continued claims to rise to 6.16 million.
Separately, planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from August, global outplacement consultancy Challenger, Gray & Christmas said. September's layoff tally was 30 percent lower compared to the same period last year.
(Reporting by Lucia Mutikani and Emily Kaiser; Editing by Neil Stempleman)