Data grim on housing, joblessness
WASHINGTON -- Sour reports on Thursday on the number of people who sought unemployment benefits or bought new homes illustrate what Federal Reserve Chairman Ben Bernanke acknowledged the day before: Many factors weighing on the economy are proving to be more chronic than first imagined.
Applications for unemployment benefits rose to a seasonally adjusted 429,000 last week, the Labor Department reported. It was the biggest jump in a month and marked the 11th straight week that applications have topped 400,000.
New-home sales fell in May to a seasonally adjusted annual rate of 319,000, the Commerce Department said. That's fewer than half the 700,000 that economists say must be sold to sustain a healthy housing market.
The Fed cut its economic growth forecast to between 2.7 percent and 2.9 percent this year, down from its range of 3.1 percent to 3.3 percent in April. The Fed also raised its unemployment rate estimate slightly, saying it would not fall below 8.6 percent this year.
Economists say they are worried by conflicting explanations for the more downbeat view.
In its policy statement, the Fed blamed the worsening outlook in part on temporary factors that should abate by fall, such as high gas prices and supply disruptions from Japan's natural disasters.
But when pressed, Bernanke acknowledged that some troubles, such as weaknesses in the financial sector and the housing market, are chronic and could linger.
The White House, trying to head off setbacks, announced yesterday it was releasing 30 million barrels of oil from the country's emergency reserve to increase supplies during the busy summer driving season. The move will likely send the cost of gas, which has already been falling, down further.
What would help the economy most are jobs, analysts say. But according to an Associated Press Economy survey last week, the nation will add only about 1.9 million jobs this year and the unemployment rate will fall to only 8.7 percent.
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 percent in May.
More hiring would lead to greater consumer spending, which accounts for 70 percent of total economic activity. Consumer spending slowed to a 2.2 percent growth rate in the first three months of this year.
Though new homes represent only about 20 percent of the overall home market, they have an outsize impact on the economy. Each new home creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.
Larger down payment requirements, tougher lending standards and high unemployment are preventing people from buying homes. Many people who can afford to buy are holding off, worried that prices have yet to bottom out.
Despite historically low mortgage rates, fewer people can qualify or even want to buy a home right now. That will continue to drag on the broader recovery for years to come.