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18 July 2024

Data suggest economy stagnating

By Agencies


The housing market has still not reached bottom, the number of workers drawing jobless benefits has hit a 2-1/4-year high and consumers are tightening their purse strings, reports on Thursday showed, suggesting the economy may have screeched to a halt.

Pending sales of previously owned homes fell by 1.5 per cent in December and were off a sharp 24 per cent from a year ago, the National Association of Realtors said.

Separately, the Labor Department said new claims for unemployment aid edged down from a two-year high last week but the number of workers remaining on the benefit rolls has reached a level not seen since October 2005 in the aftermath of Hurricane Katrina.

On the retail front, a spate of reports from key chain stores like Wal-Mart Stores Inc and Target Corp showed consumers have pulled back on spending. Sales in January were below expectations and were down at some key retailers.

"The risk of recession has certainly gone up," said Mark Vitner, economist at Wachovia Securities in Charlotte, North Carolina, who expects growth to remain lackluster until the housing market bottoms out around midyear.

Concern about the economy's weakness, heightened by a warning on slowing orders at technology heavyweight Cisco Systems Inc weighed on US stock prices, which were up slightly in early afternoon.


For last year as a whole, pending home sales -- a gauge of contracts signed for sales that have yet to close -- came in at the lowest level since the real estate industry trade group began tracking the data in 2001.

"It's a great borrowing environment, but it’s not translating into sales because everybody is looking for the bottom of the market," said Bob Moulton, president of mortgage brokerage Americana Mortgage Group in Manhasset, New York.

Moulton said sales will not pick up until prices, which have been falling across the United States, come down further.

The Realtors group projected sales would remain soft until the second half of this year, and said the market should then begin to improve, particularly if limits on the size of loans government-sponsored enterprises Fannie Mae and Freddie Mac can buy are raised, a step Congress is considering.

The associaton said prices for existing homes were likely to drop by 1.2 per cent this year, with prices for new homes tumbling by a bigger 4.3 per cent.


Weakness that last year had been pretty much contained in the housing market has begun to spread through the economy more widely.

A report on Tuesday showed activity in the mighty US services sector contracted last month, while data on Friday showed US employment shrank in January for the first time in 4-1/2 years.

New applications for unemployment benefits fell by 22,000 last week to 356,000, partially reversing a big spike the week before, but economists said the level, which was higher than expected, still suggested the labour market was weakening.

"We are having a lot of trouble in the labour market," said Lindsey Piegza, market analyst for FTN Financial in New York. "Generally, a 350,000-to-375,000 range is a recession warning zone."

The softening jobs market has made it increasingly difficult for unemployed workers to find new jobs.

The number of people remaining on benefit rolls after drawing an initial week of aid rose by 75,000 to 2.79 million in the week to January 26. It was the highest level of so-called continued claims since October 2005.


A soft jobs market could further imperil the consumer spending that drives two-thirds of the economy's growth. Already, signs have emerged that spending has softened.

Wal-Mart, the world's largest retailer, reported a 0.5 per cent rise in January same-store sales, short of the 2 per cent rise analysts expected. Target, the No. 2 US retailer, posted a 1.1 per cent drop in same-store sales.

January's sales data follow a disappointing holiday season for retailers and helped further fuel fears the economy could be tipping into recession.

"Given the difficult economic backdrop retailers and consumers are facing, expectations have still been pared to lower levels despite starting out at very modest initial projections," said Ken Perkins, president of research firm Retail Metrics.