Weakening job, housing markets reveal US problems

Sour reports on Thursday on the number of people who sought unemployment benefits and buyers of new homes illustrate what US Federal Reserve Chairman Ben Bernanke acknowledged on Wednesday: Many factors weighing on the economy are proving to be more chronic than first imagined. The poor housing and employment data contributed to a bleak day of economic news. The European Central Bank chief renewed warnings about Europe's debt crisis and stocks tumbled. And 28 countries agreed to boost global oil supplies. Ultimately, that will provide some relief to consumers who have been paying higher gas prices since January. But it also forced energy stocks lower, contributing to the sell-off on Wall Street. The Dow Jones industrial average fell 180 points in mid-day trading but regained most of the losses by the close. "We have had a worrisome string of soft numbers which is painting a fairly bleak picture of the recovery," said Sal Guatieri, senior economist at BMO Capital Markets. "The labour market is weakening according to the jobless claims numbers, confid-ence appears to be slipping among households and small businesses and home sales are still very depressed." Applications for unemployment benefits rose last week by the most in a month, a sign that layoffs remain elevated. Applications jumped by 9,000 to a seasonally adjusted 429,000 last week, the Labour Department said on Thursday. It was the second increase in three weeks and the 11th straight week that applications have been above 400,000. New-home sales fell in May to a seasonally adjusted annual rate of 319,000, the Commerce Department said. That's far below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market. Housing remains the weakest part of the US economy. Sales of new homes have fallen 18 per cent in the two years since the recession ended. Last year was the worst for new-home sales on records dating back half a century. Analysts said that the reports served to highlight the Fed's decision last week to cut its economic outlook for growth and employment this year. It also supports worries expressed by Bernanke that many of the economy's troubles could last into next year. Applications fell as low as 375,000 in February, a level that signals sustainable job growth. But applications surged in April to an eight-month high of 478,000 and have shown only modest improvement since that time. The four-week average for unemployment benefit applications, a less volatile measure, was unchanged last week at 426,250. The economy needs to generate at least 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate, which rose to 9.1 per cent in May. Companies pulled back on hiring in the spring in the face of higher gas and food prices. That has cut into consumer spending on other items such as furniture and appliances, which help boost economic growth. Employers added only 54,000 net new jobs in May, much slower than the average gain of 220,000 per month in the previous three months. "We need initial claims to fall back below 400,000 to signal stronger economic growth than the area we seem to be mired in,"said analysts John Ryding and Conrad DeQuadros at RDQ. Though new homes represent only about 20 per cent of the overall home market, they have an outsize impact on the economy. From / Gulf News