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Claims for jobless benefits last week dropped to the lowest level in almost four years, pointing to an improvement in the U.S. job market that may help bolster spending in the new year.

Applications (INJCJC) for unemployment insurance payments plunged by 50,000 to 352,000 in the week ended Jan. 14, less than forecast and the fewest since April 2008, according to data from the Labor Department issued today in Washington. Other reports showed consumer prices were little changed in December for a second month and builders started work on the most single-family houses in more than a year.

Jobless claims, which tend to be volatile week to week around holidays, have trended down over the past month, a sign employment may pick up after payrolls grew by 200,000 in December. Gains in incomes, combined with less inflation, will probably underpin household spending, which accounts for about 70 percent of the world’s largest economy.

“We’ve had fundamental improvement in the labor market in the past few months,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York. “Moderate inflation will certainly help households spend more in the face of slower wage growth.”

Stocks climbed on the drop in claims and as Bank of America Corp. showed a profit last quarter. The Standard & Poor’s 500 Index rose 0.5 percent to 1,314.5 at the close in New York. Treasury securities fell, sending the yield on the benchmark 10- year note up to 1.98 percent from 1.90 percent late yesterday.

Less Confidence
In Europe today, consumer confidence in the U.K. dropped in December as rising unemployment and Europe’s debt crisis sapped Britons’ expectations for an economic recovery. An index of sentiment fell to 38 from 40 in November, the Swindon, England- based Nationwide Building Society said today. It reached 36 in October, the lowest since the survey began in 2004.

Elsewhere, Australia unexpectedly lost jobs in December for a second straight month, capping the nation’s worst year for employment in almost two decades.

The cost of living in the U.S. was little changed in December for a second month as stores cut prices to boost holiday sales, other figures from the Labor Department showed. Excluding (CPUPXCHG) volatile food and fuel costs, the so-called core index rose 0.1 percent.

Retailers from Williams-Sonoma Inc. (WSM) to Macy’s Inc. used discounts to attract customers during the holidays. Less inflation means Federal Reserve officials have leeway to take additional steps to spur growth should the economic expansion stumble.

Little Inflation
“There are no signs of budding inflationary pressures,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. (PNC) in Pittsburgh, who accurately forecast prices would remain steady. “The core index is going to be pleasing to the Fed.”

The lack of inflation is helping preserve household buying power. Hourly earnings adjusted for prices rose 0.2 percent on average in December, the Labor Department figures also showed. They were up 2.4 percent at an annual rate over the past three months, the best performance since June 2010, according to Bloomberg News calculations.

Last week’s drop in jobless claims was the biggest since September 2005, when applications first surged then plunged in the aftermath of Hurricane Katrina.

The median forecast of 41 economists in a Bloomberg survey projected a decrease to 384,000. Estimates ranged from 363,000 to 405,000. The Labor Department revised the previous week’s figure up to 402,000 from the 399,000 previously calculated.

Seasonal Volatility
A Labor Department spokesman said the drop reflected volatility seen during this time of year. Claims tend to jump around during holidays as the government has difficulties adjusting the data for seasonal swings in employment.

The four-week average, which smoothes out fluctuations, decreased to 379,000 last week from 382,500.

Last week correlated with the period surveyed by the Labor Department to calculate monthly payrolls. The four-week average was down from 380,800 during the comparable period in December, a sign employment will keep growing.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

The increase in payrolls last month followed a 100,000 gain in November, Labor Department data showed earlier this month. The jobless rate fell to 8.5 percent in December, the lowest in almost three years.

Housing Stabilizing
Another report added to evidence the housing market was starting to stabilize. Builders broke ground on 470,000 single- family houses at an annual rate, the most since April 2010, according to figures from the Commerce Department.

A 20 percent drop in construction of multifamily units, like apartment buildings, which tends to be volatile, paced a 4.1 percent decline in total housing starts last month, the report showed. For all of 2011, work on multifamily dwellings jumped 78 percent as more Americans opt to rent rather than own.

Conversely, construction of single-family houses last year was the weakest in data going back to 1959.

Also today, reports showed consumer confidence retreated last week from a six-month high and manufacturing in the Philadelphia Fed region accelerated this month.

The Bloomberg Consumer Comfort Index (COMFCOMF) declined to minus 47.4 in the period ended Jan. 15 from a reading of minus 44.7 the prior week. An almost 20-cent per gallon increase in gasoline costs over the past month may be starting to counter the benefits of an improving job market.

Philadelphia Fed
The Fed Bank of Philadelphia’s general economic index increased to a three-month high of 7.3 from 6.8 in December. Readings greater than zero indicate expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Manufacturing is among industries hiring. The Elgin, Illinois, based-U.S. unit of Germany’s Harting Deutschland GmbH, a maker of industrial connectors, will probably hire 20 people this year after doubling the workforce to 120 since the recession, Chief Executive Officer Rolf Meyer said.

“We have a couple of large orders that we’re negotiating on in the broadcast and medical industries, and these will likely hit in the next five or six months,” said Meyer, who, supplies customers such as General Electric Co. (GE) and Siemens AG.