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Factory activity gains speed and jobless claims drop


January 24. 2013 8:56PM

WASHINGTON - Factory activity grew the most in nearly two years in January and the number of new claims for jobless benefits dropped to a five-year low last week, giving surprisingly strong signals on the economy's pulse.

Financial information firm Markit on Thursday said its preliminary Purchasing Managers Index for manufacturing rose to 56.1 this month, its best showing since March 2011. A reading above 50 indicates expansion.

A separate report from the Labor Department showed initial claims for state unemployment benefits fell by 5,000 to 330,000, the lowest since January 2008 when the 2007-2009 recession had just begun.

Together, the data suggest the economy entered the new year with some underlying momentum despite an ongoing political battle in Washington over fiscal policy.

"The economy is structurally doing a little bit better," said Michael Strauss, an economist at Commonfund in Wilton, Connecticut.

Analysts polled by Reuters had expected Markit's "flash" factory gauge to slip and looked for claims to rise to 355,000.

The unexpectedly strong data helped stocks to rise, reversing early declines caused by disappointing revenues reported by Apple Inc. Better-than-expected economic news from the euro zone and China also supported stocks.

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 dollar extend gains versus the yen , while U.S. Treasury debt prices fell.

Claims are now at roughly the same level they were in much of 2006 and 2007.

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