Consumer confidence fell more than expected in December, hitting a four-month low as a looming fiscal crisis sapped what had been a growing sense of optimism about the economy.
Other data on Thursday showed the number of Americans filing new claims for unemployment aid fell last week to nearly its lowest level in 4 1/2 years, while new home sales last month hit their highest level since April 2010.
The Conference Board, an industry group, said its index of consumer attitudes fell to 65.1 from 71.5 in November.
Gauges of business sentiment have weakened recently on worries about $600 billion in tax hikes and government spending cuts scheduled for early January. Now consumers also appear apprehensive, a sign worries about the so-called "fiscal cliff" could bite into household spending.
"People are hearing about (the cliff) and it negatively impacts confidence and investor sentiment and even holiday sales," said Todd Schoenberger, managing partner at Landcolt Capital in New York.
Also, with business sentiment weakening in recent months as the fiscal cliff has approached, many economists think hiring may remain sluggish even as the pace of layoffs ease.
The Labor Department said initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 350,000, the Labor Department said. That was lower than analysts' forecasts for 360,000 new claims last week.
"This recent improvement in the claims data is potentially a favorable signal for the labor market," said Daniel Silver, an economist at JPMorgan in New York.
After spiking in the wake of a mammoth storm that ravaged the East Coast in late October, the weekly levels of new claims have now dropped to their lowest levels since the early days of the 2007-09 recession. The four-week moving average fell 11,250 last week to 356,750, the lowest since March 2008.
The claims data for last week has no direct relation to the Labor Department's monthly employment report, but suggests the surge in layoffs since the recession has at least run its course.
Companies in recent months have been adding to their payrolls at a lackluster pace, and analysts expect the monthly employment report due on January 4 will show 143,000 jobs created in December, down from 146,000 in November.
Analysts said the holiday season can make it more difficult to seasonally adjust the claims data, another reason to be cautious.
"There is usually a high margin of error in predicting the monthly payroll number," said Michelle Meyer, senior economist at Bank of America Merrill Lynch at New York. "That's even more the case this month from the residual effects of the hurricane and year-end seasonal adjustments," she said.
U.S. stocks opened flat, while longer-dated U.S. Treasuries rose after the data and after Senate Majority Leader Harry Reid said it was unlikely a budget deal would be reached before year end.
Following a truncated holiday break in Hawaii, U.S. President Barack Obama has returned to Washington to restart negotiations to avert the fiscal cliff, which if not averted would likely put the U.S. economy back into recession.
The signs of progress in the claims data also included a caveat, at least for the latest week.
Obama declared Monday a holiday for federal workers and many state offices followed suit and were unable to provide complete data for last week's jobless claims. Data for 19 states was estimated, a Labor Department official said.
Fourteen of those states, including Texas and California, submitted their own estimates, which tend to be fairly accurate because the state officials work with a significant amount of data, the Labor Department official said.
Analysts said the holiday season was another reason to be cautious about the report's positive tenor. Also, with business sentiment weakening in recent months as the fiscal cliff has approached, many economists think businesses are holding back on hiring.
"A significant improvement in labor market conditions ahead of any resolution to the fiscal cliff is unlikely," said Michael Gapen, an economist at Barclays in New York.
Separately, the Commerce Department said new U.S. single-family home sales accelerated in November to a 377,000-unit annual rate while the median sales price jumped 14.9 percent from the same month in 2011, signs that the U.S. housing recovery is gaining some steam.
In a fourth report, the Chicago Federal Reserve said its index of factory activity in the U.S. Midwest increased in November to 93.7 from a revised 92.2 in October.