* Consumer spending rises faster than expected in October
* Applications for jobless aid lowest in more than a year
* Orders for long-lasting goods unexpectedly fall
* New home sales highest in a year, inventory plunges
(Adds details, closing market prices)
By Lucia Mutikani
WASHINGTON, Nov 25 (Reuters) - U.S. consumer spending and
home sales rose more than expected in October, while new claims
for jobless benefits fell sharply last week, suggesting the
economic recovery was gaining traction.
A surprise decline in orders for long-lasting U.S.-made
goods and a second straight monthly drop in consumer
confidence, however, offered a reminder that the recovery from
the most brutal recession in 70 years would be gradual.
"Overall, the data suggest we have relatively strong growth
momentum, at least for now. The big question is about next
year, when the effects of government stimulus fade. What is the
economy going to look like?" said Zach Pandl, an economist at
Nomura Securities International in New York.
The economy resumed growth in the third quarter, helped by
government programs such as a popular $8,000 tax credit for
first-time home buyers, which continues to prop up sales.
The Commerce Department on Wednesday said consumer
spending, which normally accounts for over two-thirds of U.S.
economic activity, increased 0.7 percent last month after
falling 0.6 percent in September. Economists had expected a
gain of 0.5 percent.
Separately, the Labor Department reported that initial
claims for state unemployment benefits slid to 466,000 last
week, the lowest in more than a year, from 501,000 the prior
week. It was the fourth straight weekly decline and the first
time since January that claims dipped below 500,000.
Another Commerce Department report showed sales of newly
built U.S. single-family homes surged 6.2 percent to a one-year
high last month. Sales hit a 430,000 unit annual pace, up from
405,000 in September and beating expectations for a 410,000
unit pace.
The data lifted U.S. stocks, with both the blue chip Dow
Jones industrial average and the Standard & Poor's 500 Index
ending at 13-month closing highs. Prices for U.S. government
bonds rose as an auction of seven-year notes attracted strong
demand, outweighing the positive economic data that had earlier
driven Treasury debt prices lower.
NEW HOMES INVENTORY PLUMMETS
The rise in housing sales pushed the supply of new homes on
the market down to 239,000 units, the lowest level since May
1971.
Home sales have been driven higher by buyers rushing to
take advantage of the tax credit for first-time homeowners,
which had been scheduled to expire on Nov. 30 but has since
been extended into next year.
Falling house prices and low mortgage rate are also
contributing to the recovery in the housing market, whose
collapse was the main trigger of the U.S. recession.
Some analysts noted that a large chunk of sales in October
was for new homes on which building had not yet started, making
it unlikely the tax credit had boosted sales.
"There is no way you could have put in an order for a brand
new constructed home in October and expect that it would be
finished in November to have closed on the contract," said
Omair Sharif, an economist at RBS in Greenwich, Connecticut.
"It's much more likely that the sales gain was reflective
of low prices, low mortgage rates and other fundamentals."
U.S. 30-year mortgage rates dropped in the past week to
match a record low set in April, while the 15-year home loan
rate fell to a new all-time low, Freddie Mac reported on
Wednesday.
Data earlier this week showed sales of previously owned
homes jumped to their highest level in more than 2-1/2 years
last month, and the decline in prices moderated.
Economists are hoping signs of stability in the housing
market will help to improve the psychology of households,
shattered by the highest unemployment in 26-1/2 years, but
confidence remained shaky this month.
The Reuters/University of Michigan Surveys of Consumers'
final index of consumer sentiment in November came in at 67.4,
down from October's 70.6 but up from an initial 66.0
And a 0.6 percent drop last month in orders for durable
goods, which include products such as refrigerators and
computers meant to last at least three years, raised fears that
the manufacturing sector's recovery was faltering.
Orders increased 2 percent in September.
"While we are convinced that the industrial recession has
ended, the chance of a vigorous recovery is remote. The
industrial recovery will likely be relatively slow and
punctuated by fits of growth and decline," said Daniel
Meckstroth, chief economist for the Manufacturers
Alliance/MAPI.
Non-defense capital goods orders excluding aircraft, a
closely watched proxy for business spending, fell 2.9 percent
last month after rising by a hefty 2.6 percent in September.
(Additional reporting by Mark Felsenthal in Washington and
Richard Leong in New York; Editing by Leslie Adler)
((lucia.mutikani@thomsonreuters.com; Tel: 202 898 8315;
Reuters messaging: lucia.mutikani.reuters.com@reuters.net))
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