There were several signs of a softening economy Thursday as two key indicators in the struggling U.S. home construction sector fell to 10-year lows in July and the number of U.S. workers seeking jobless benefits rose, government reports said Thursday.
In addition, a survey from the Philadelphia Federal Reserve showed some stagnation in factory activity in the Mid-Atlantic region.
The housing numbers were worse than expected as home construction starts fell 6.1% in July and building permit activity, a sign of future construction plans, sank.
The Commerce Department data was another snapshot of the deteriorating U.S. housing industry and weighed on financial markets, which are in turmoil over a tightening of credit and blow-ups in the subprime mortgage market.
"It does look as if builders are throwing in the towel, especially in the South which is where the most difficult markets are," said Pierre Ellis, senior economist at Decision Economics in New York.
U.S. stocks opened sharply lower Thursday, also pushed down by a move by Countrywide Financial Corp., the largest U.S. mortgage lender, to draw down an entire $11.5 billion credit facility. Prices for U.S. government debt rallied, pushing yields, which move inversely to prices, down sharply.
"The housing starts number just adds fuel to the fire. You've got financial markets in panic," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
A Commerce Department report said housing starts set an annual pace of 1.381 million units in July, lower than Wall Street forecasts for 1.405 million units and the upwardly revised 1.470 million rate for June. It was the lowest pace since the January 1997 rate of 1.355 million units.
Building permits fell 2.8% in July to an annual pace of 1.373 million, their lowest since October 1996 when they reached 1.358 million. Economists polled by Reuters expected July permits at 1.400 million after 1.413 million in June.
July's drop in housing starts was the worst in the South, where they fell 11%. Starts also fell in the West and in the Northeast, but they rose in the Midwest.
Jobless Claims Rise Unexpectedly
The number of U.S. workers signing up for jobless benefits rose unexpectedly to 322,000 last week. It was the highest level in two months but still pointed to a steady job market, Labor Department data Thursday showed.
Economists polled ahead of the report were expecting the weekly claims level to inch down to a seasonally adjusted 313,000 for the week ended Aug. 11, from 316,000 reported the prior week.
Fluctuations are common in this weekly data, particularly in the summer months. A Labor Department official said there were no special factors linked to the latest increase.
Robert Brusca, chief economist at Fact and Opinion Economics in New York said the numbers were not worrisome.
"Right now I would say this number doesn't mean anything. But it is an upswing, and you watch to keep an eye on that," Brusca said.
The four-week moving average, considered a better measure of employment conditions because it irons out the weekly gyrations, edged up to 312,500 from 307,750.
Philly Fed Index Weakens
Meanwhile, the Philadelphia Federal Reserve Bank said its business activity index was at 0.0 in August, its weakest in since December 2006, versus 9.2 in July. Economists polled by Reuters had forecast a reading of 9.0.
Any reading above zero indicates growth in the region's manufacturing sector.
U.S. Treasury debt prices extended gains following the release of the data, while stocks extended a sharp decline.
"The concern is that the global economy may weaken and the Philly Fed is adding to the skittishness in the stock market -- this just adds to the level of uncertainty," said Steve Goldman, market strategist at Weeden & Co. in Greenwich, Connecticut.
The Philadelphia Fed's employment index rose to 21.2 in August from 4.1 in July, while the new orders index eased to 7.1 from 11.3 last month.
The six-month business conditions outlook rose to 36.2 in August from 30.4 in July, while the six-month capital expenditures outlook rose to 26.3 from 18.8 in last month.
A Philadelphia Fed spokesman said the index may not fully take into account recent turmoil in the financial markets caused by tighter credit conditions.
"We had a limited number of firms that were reporting since the changes in the financial markets," said Michael Trebing, senior economic analyst at the Philadelphia Fed.