Data increase fears of a recession
Softer-than-expected new-home sales and a surge in new claims for jobless benefits reported Thursday heightened fears of a steep U.S. economic slide and overshadowed a strong third-quarter performance.
A series of reports implied that a housing-led slump, which is affecting credit availability, was intensifying the drag on economic activity and heightening risks that a slowdown could turn into a recession.
The Commerce Department said new-home sales in October were at an annual rate of 728,000 units -- well below Wall Street economists’ forecasts for a 750,000-unit rate -- while the median sale price plummeted at the steepest rate since 1981.
The department revised downward September new-home sales steeply to a 716,000-unit rate from a previously reported 770,000, further underlining the housing sector’s decline.
Separately, the Labor Department said new claims for unemployment aid jumped by 23,000 last week to the highest number since February, though the figure might have been affected by the fact that the week contained the Thanksgiving Day holiday.
The housing and jobless claims data overshadowed a separate Commerce Department report showing that higher export volume and inventory-building propelled gross domestic product -- the broadest measure of U.S. economic performance -- ahead at the fastest pace in four years during the third quarter.
Paul Ashworth, an economist with Capital Economics Inc. in London, said the third-quarter GDP figures were misleadingly optimistic because they largely predated the turmoil that hit financial markets in August.
“It is a completely different world now, and we expect GDP to actually contract over the final three months of this year,” Ashworth said. “The chances of an outright recession -- two quarters of negative growth -- are probably as high as 50-50.”
A report from the Office of Federal Housing Enterprise Oversight said housing prices posted their first quarterly drop in 13 years during the third quarter. That is likely to act as a damper on consumer spirits after years in which many homeowners felt free to tap the accumulated equity in their homes to finance spending.
The Commerce Department revised upward its estimate for third-quarter GDP expansion to a 4.9% annual rate from 3.9% reported a month ago. But the weak housing sector and waning consumer confidence already are predicted to sap fourth-quarter growth, and many analysts say risks are rising for a recession next year.
“It looks like it could be lights out for the economy,” said economist Chris Rupkey of Bank of Tokyo-Mitsubishi UFJ in New York, referring to the rise in claims. “This is exactly what it looks like when we are going into recession.”
Economist Steven Wieting of Citigroup said that after showing surprising resilience through 2 1/2 years of housing declines, the economy now faced pressure from tightening credit conditions. As a result, “we . . . think growth in the fourth quarter will be below 1%,” he said.
