The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.
The reports “paint a bleak economic landscape ahead,” said Stuart Hoffman, chief economist at PNC Financial Services Group.
And the furious pace of layoffs continued Thursday, with Microsoft Corp. saying it will slash up to 5,000 jobs over the next 18 months. Chemical maker Huntsman Corp. will ax 1,175 jobs this year and will get rid of an additional 490 contractors. Those – as well as other employers – have seen customer demand wane and are cutting costs to survive the fallout.
“The corporate sector is rolling over, and we probably have not yet seen many job losses stemming from the sudden collapse in international trade,” warned Ian Shepherdson, chief U.S. economist at High Frequency Economics. “The labor market remains a disaster area.”
Wall Street ended a volatile trading day sharply lower following the worse-than-expected economic data, concerns about the nation’s banks and disappointing results from Microsoft. The Dow Jones industrial average lost more than 105 points.
On Capitol Hill, House Democrats rolled up their sleeves to nail down pieces of Obama’s $825 billion stimulus package – a blend of tax cuts and increased government spending that includes boosting unemployment benefits- with the goal of a floor vote next week.
And the Senate Finance Committee cleared Obama’s nomination of Timothy Geithner to be Treasury secretary – despite what the nominee called “careless” and “avoidable” tax mistakes. The full Senate still must clear Geithner, president of the Federal Reserve Bank of New York, before he can take office.
Already Geithner is helping shape the Obama administration’s new plan to bust through the debilitating credit and financial crises that are aggravating the recession. The package – likely to be unveiled in a few weeks- may include a program to mop up bad mortgages and other toxic assets so banks would be in a better position to lend money more freely.
On the layoffs front, first-time applications for unemployment benefits jumped last week by 62,000 to 589,000, the Labor Department reported. That was much more than the 540,000 tally economists expected. It left claims matching a 26-year high reached four weeks ago, although the work force has grown by about half since then.
Part of the rise was blamed on a backlog of claims that piled up in recent weeks as several states experienced computer crashes from a crush of filings, a government analyst said.
The number of unemployed people continuing to draw jobless benefits soared by 97,000 to 4.6 million. That figure, too, was above analysts’ expectations, and was up considerably from a year ago, when 2.7 million people were receiving such aid. The pickup shows that those out of work are having trouble finding a new job.
Some economists believe the number of people continuing to draw unemployment benefits could rise to 5.5 million – possibly more – this year even if a new stimulus package is enacted.
On top of the 4.6 million covered by the regular unemployment insurance program, another 2 million Americans requested benefits under an emergency extension authorized by Congress last year. But the 2 million figure is not seasonally adjusted and is volatile.
Obama’s stimulus package – which is running into Republican resistance – includes plans to extend and boost unemployment benefits, give states $87 billion to deal with Medicaid shortfalls and help unemployed people retain health care. Tax credits for workers, tax cuts for businesses and money for public works projects, such as road and bridge construction, also are being put forward.
Meanwhile, the miserable state of the U.S. housing market was in full view Thursday, and the outlook remains dim.
The Commerce Department reported that new-home construction plunged 15.5 percent in December to an annual rate of 550,000 units, an all-time low, capping the worst year for builders on records dating back to 1959. Last month’s performance was weaker than economists expected, and shattered the previous record low set in November.
“The extent of the decline was breathtaking,” said Joel Naroff, president of Naroff Economics Advisors. “Home builders were simply sitting around watching the grass grow, and conditions are not likely to change soon.”
For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.
The report also showed that applications for building permits – considered a reliable sign of future activity – sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.
Rising defaults, tighter lending standards and fear about the housing market’s future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.
The collapse of the once high-flying housing market has been devastating to the United States’ economic health.
Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a painful recession now in its second year.
The Obama administration wants to ramp up efforts to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.
The Federal Reserve has taken a number of extraordinary steps with the hope of providing some relief. It is buying certain types of mortgage securities and has slashed a key interest rate to a record low of between zero and 0.25 percent. To help brace the economy, the Fed is expected to hold rates at that level at its meeting next week and probably for the rest of this year.
In other housing-related news, rates on 30-year mortgages climbed above 5 percent this week, ending a five-week streak at record low levels. Average rates on 30-year fixed mortgages rose to 5.12 percent this week, from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971, the mortgage giant reported.
Builders and economists are skeptical about the prospects of a housing turnaround. Unemployment last month hit a 16-year high of 7.2 percent and is expected to march upward this year – a situation that can put stresses on existing home owners and make it less likely new buyers will stream into the market.
Against this backdrop, Patrick Newport, economist at IHS Global Insight, summed up the outlook: “More pain ahead.”
Copyright 2009 The Associated Press.