US unemployment rises, housing crisis deepens

WASHINGTON - US unemployment claims hit a 16-year high and housing construction fell to half-century lows, data showed Thursday, highlighting the troubling depths of the recession facing the new Obama administration.

By (AFP)

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Published: Thu 22 Jan 2009, 11:03 PM

Last updated: Sun 5 Apr 2015, 10:25 PM

President Barack Obama has made economic recovery his new administration’s top immediate priority and is seeking an 825-billion-dollar stimulus package from Congress to kick-start growth.

Official data on Obama’s second full day in office highlighted the challenges in two of the worst-hit segments of the economy: the labor market and the collapsed housing sector, the epicenter of the global credit squeeze.

In a sign of a rapidly deteriorating job market, the Labor Department reported the number of new unemployment claims leapt in the week ended January 17 to 589,000, matching the highest level since November 1982.

“The labor market remains a disaster,” said Ian Shepherdson, chief US economist at High Frequency Economics.

“It is clear from the latest numbers that the underlying trend in claims is still upwards and we have no hope that the peak is anywhere near. The corporate sector is rolling over, and we probably have not yet seen many job losses stemming from the sudden collapse in international trade.”

The economy had capped a full year of deepening recession in December with a total loss of 2.6 million jobs and unemployment at a 16-year high of 7.2 percent.

Rising job losses and fears of layoffs have significantly damaged consumer confidence, leading worried consumers to curb the spending that normally drives two-thirds of US economic activity.

Software giant Microsoft on Thursday became the latest major employer to slash headcount, announcing up to 5,000 jobs would be eliminated due to weak technology sales in a slowing economy.

The housing sector appeared headed for further distress as the Commerce Department reported housing starts and building permits tumbled in December to half-century lows.

Officials have said a turnaround in the sector is key to economic recovery.

The number of housing starts plunged 15.5 percent in December from November to an annualized rate of 550,000 units.

It was the third consecutive monthly drop in starts as the construction sector retrenched in the face of rising unemployment and tight financing conditions despite unprecedented government measures to break the credit crunch.

Permits to build new homes, an indicator of future activity in the housing sector, dropped 10.7 percent from the prior month to an annualized rate of 549,000.

The sharp drop in housing starts outstripped most analysts’ forecasts of 610,000, while the permits decline was not as bad as the 615,000 forecasted.

The official numbers were the lowest on record: Housing starts data were first published in January 1959, and permits data in January 1960.

“To put the December construction number into perspective, it is over 30 percent lower than the weakest home start pace posted in any other slowdown over the past 50 years. It is a number that is almost incomprehensible,” said Joel Naroff at Naroff Economic Advisors.

IHS Global Insight’s Patrick Newport said the report “points to further double-digit drops in starts during both January and February.”

“Conditions in the market for new homes have not been this bad since the 1930s, and they continue to worsen,” he added.

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