Sluggish New-Home Sales Drag on Economy's Growth

Thursday, 24 Feb 2011 03:15 PM

 

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Sales of new homes plummeted in January, and businesses ordered fewer long-lasting goods. But the number of people applying for unemployment benefits has fallen over the past four weeks to the lowest level in two-and-a-half years.

Together, the government reports Thursday sketched a mixed picture. They suggest that the struggling housing industry remains a drag on an economy that's growing slowly but steadily.

The reports showed:

 • New-home sales dropped 12.6 percent last month to a seasonally adjusted annual rate of 284,000, the Commerce Department said. That's less than half the pace economists consider healthy. The drop is a worrisome sign because it follows the worst year for new home sales in nearly 50 years.

 • Companies' orders for long-lasting manufactured goods, excluding the volatile aircraft and auto categories, dropped 3.6 percent last month, Commerce said in a separate report. The drop followed two months of gains. One category that's viewed as a proxy for business investment spending fell by the largest amount in two years.

Overall, orders for durable goods rose 2.7 percent, driven by a jump in commercial aircraft orders. Still, orders totaled around $200 billion. That's considered a healthy level, and it's 25 percent above the recession low hit in March 2009.

 • Applications for unemployment benefits dropped by 22,000 last week to a seasonally adjusted 391,000, the Labor Department said. It was the third decline in four weeks.

The four-week average for applications, a less volatile figure, fell to 402,000. It was the fewest since late July 2008 and a sign that the job market is slowly improving.

Layoffs have fallen to pre-recession lows. And the downward trend in applications for unemployment benefits indicates they are dropping further. Still, employers aren't hiring enough to lower high unemployment.

Applications for unemployment benefits below 425,000 tend to signal modest job creation. But they would need to dip consistently to 375,000 or below to indicate a significant drop in the unemployment rate. Applications for benefits peaked during the recession at 651,000.

"While layoffs have come way down, new hiring hasn't picked up appreciably," said Cary Leahey, an economist at Decision Economics. "Many firms are still sitting on the fence."

The economy is growing. But the growth isn't happening fast enough to encourage aggressive hiring.

The nation's gross domestic product, the broadest gauge of the output of goods and services, rose at a 3.2 percent annual rate in the October-December quarter. The government will update its fourth-quarter estimate Friday; economists think the figure will be revised up slightly to 3.3 percent.

One of the clouds overhanging the economy is the depressed housing market, which many analysts say hasn't yet bottomed out. Last year marked the fifth straight annual decline for new-home sales after they hit record highs during the housing boom.

Buyers purchased 322,000 new homes last year. It was the fewest annual total on records going back 47 years. Economists say it could take years before sales return to a healthy pace.

Builders of new homes are struggling to compete in markets saturated with foreclosures. High unemployment and uncertainty over home prices have kept many potential buyers away.

Poor sales of new homes mean fewer jobs in the construction industry, which normally powers economic recoveries. On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

The broader housing sector hasn't fared much better. Sales of previously occupied homes rose slightly last month. But the seasonally adjusted annual pace of 5.36 million is still far below the 6 million homes a year needed to maintain a healthy market.

Mortgage applications are now near their lowest levels in 15 years, and the average rate on a 30-year fixed mortgage has surged since hitting a 40-year low of 4.17 percent in November. The rate on the 30-year loan dipped to 4.95 percent from 5 percent this week, Freddie Mac said Thursday.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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