The number of workers lining up for jobless benefits surged last week, while new housing starts and permits hit record lows in December, pointing at an acceleration in the economy’s downward spiral.
First time applications for state unemployment insurance benefits increased to a seasonally adjusted 589,000 in the week ended January 17 from a revised 527,000 the prior week, the Labor Department said on Thursday.
It was the highest level of initial claims since a matching reading in the week of December 20 and beat analysts’ forecasts for a rise to 540,000 new claims versus a previously reported count of 524,000 the week before.
The last time claims were higher was in 1982, when they notched a weekly rise of 612,000. “The jobs outlook has not improved since the fourth quarter,” said Christopher Low, chief economist at FTN Financial in New York.
US equity index futures extended losses after the data, while government bond prices, which tend to benefit from any signs of further weakness in the economy, rose. The US dollar extended losses versus the yen after data.
Further indicating that the year-long recession was worsening, housing starts fell 15.5% to a seasonally adjusted annual rate of 550,000 units, the lowest on record, from an upwardly revised rate of 651,000 units in November, Commerce Department data showed.
That was the biggest percentage drop since January 2007, when housing starts fell 16.2% and was sharply below analysts’ expectations for an annual rate of 610,000 units for December.
New building permits, which give a sense of future home construction, dropped 10.7% to 549,000 units, also a historic low, from 615,000 units in November. That was also sharply below analysts’ estimates of 610,000. For the whole of 2008, housing starts plunged 33.3%, the biggest decline since 1974, while permits plummeted 36.2%, also the largest fall since 1974.
“They suggest we haven’t seen the bottom in housing starts and builders will continue to pare construction in hopes of bringing the market back to equilibrium,” said Michelle Meyer, economist at Barclays Capital in New York. “We should see a bottom in housing starts some time this summer.”
The collapse of the US housing market fractured the global financial system and pushed the US economy into a recession that many analysts fear could the longest and deepest since the end of World War II.
Analysts reckon that the economy might not emerge from a year-long slump unless the housing market starts stabilizing. The housing market crash has reduced household wealth, causing a sharp decline in consumer spending, which accounts for about two thirds of US economic activity.
US mortgage applications dropped last week, as a jump in home loan rates sapped demand for refinancing, the Mortgage Bankers Association said on Thursday. Average 30-year mortgage rates leaped 0.35 percentage point in the week ended January 16 to 5.24%, after touching the lowest level in the history of the trade group’s survey, which dates to 1990. (Reuters)