U.S. Economy Shows More Signs Of Slowing Down
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 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 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 sales price plummeted at the steepest rate since 1981.
The department revised down 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 by23,000 last week to the highest since February, though the figure might have been affected by the fact that last Thursday was the U.S. Thanksgiving Day holiday.
The housing and jobless claims data overshadowed a separate Commerce Department report showing higher exports 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 since 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."
The White House acknowledged that economic prospects were suffering, recasting its estimates for 2008 GDP growth downward to 2.7 percent from 3.1 percent that it forecast in June.
Stock prices were virtually dead in the water in late-morning tradebut Treasury bond prices shot higher as worried investors sought safer haven.
A report from the Office of Federal Housing Enterprise Oversight (OFHEO) said U.S. 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 up its estimate for third-quarter GDP expansion to a 4.9 percent annual rate from 3.9 percent reported a month ago. But the weak housing sector
and waning consumer confidence already is 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 percent," he added.
The Federal Reserve said Wednesday, in its latest Beige Book survey of national economic conditions, that growth had slowed in October and the first half of November, largely
because of an "ongoing slowdown" in the housing sector.
A cheaper U.S. dollar appeared to be paying off in the form of a stronger trade performance. U.S. exports climbed at an 18.9 percent annual rate instead of 16.2 percent. It was the
strongest growth in exports since the final quarter of 2003 and more than double the second quarter's 7.5 percent rate.
Imports were up at a revised 4.3 percent annual rate instead of 5.2 percent, following a 2.7 percent rate of contraction in the second quarter.