Jobless Claims Up

Jobless Claims Up; Housing Sales Down

While the Obama administration works on all cylinders trying to resolve the Gulf of Mexico oil spill, the nation’s economy continues to deteriorate right before their eyes. On Friday, the number of people filing new claims for jobless benefits jumped last week after three straight declines, another sign that the pace of layoffs has not slowed.

Initial claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000, the Labor Department said Thursday. It was the highest level in a month and overshadowed a report that showed consumer prices remain essentially flat.

The rise in jobless claims highlighted concerns about the economic rebound — especially after a report earlier this week said home construction plunged in May after government tax credits expired.

“We’ve definitely seen the economic recovery hit a wall,” said Jennifer Lee, an economist with BMO Capital Markets.

At the same time, real estate agents are complaining that the housing market has slowed down considerably as people now are demanding more from sellers; a perfect house at a greatly reduced price.

Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.

It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.

While problems with selling a home is a sign of economic problems, the continued rise in layoffs much more troubling. If layoffs persist, there’s a concern that the June employment numbers may show a decline in private-sector jobs after five straight months of gains, Lee said.

First-time jobless claims have hovered near 450,000 since the beginning of the year after falling steadily in the second half of 2009. That has raised concerns that hiring is lackluster. This could slow down the economic recovery.

The four-week average for unemployment claims, which smoothes volatility, dipped slightly to 463,500. That’s down by 3,750 from the start of January.

Kevin Logan, an economist with HSBC Securities, said many economists have been expecting claims to fall below 450,000 for several weeks now. “The wait is getting longer and longer,” said Logan. “As each week goes by, doubts about the underlying strength of the economic expansion grow.”

A separate Labor report said consumer prices fell for the second straight month. The 0.2 decline in the Consumer Price Index was pulled down by falling energy prices — most notably a 5.2 percent drop in gasoline prices.

But core consumer prices, which strip out volatile energy and food, edged up 0.1 percent in May, after being flat in April. Core prices are up only 0.9 percent over the past year — below the Fed’s inflation target.

A private research group said its gauge of future economic activity rose 0.4 percent in May, signaling slow growth in the U.S. economy through the fall. Turmoil in stock markets and a troubled housing market weighed on the Conference Board’s leading economic index, while measures related to interest rates and an increasing amount of money in the economy tugged it higher. The index is designed to forecast activity in the next three to six months.

Still, layoffs remain one of the biggest concerns for the recovery. Julia Coronado, senior U.S. economist with BNP Paribas in New York, said current economic conditions suggest initial claims will stay at around 450,000 for some time. That’s because weaker segments of the economy are shedding jobs while stronger sectors are hiring.

Economists have said they don’t expect to see sustained job creation until first-time jobless claims drop below 425,000 per week.

Meanwhile, everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.

Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.

Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.

Against such a backdrop of misery, buyers are empowered — and are taking full advantage.