Market up despite grim news
Many low notes in reports: Home sales, consumer spending, factory orders plunge
WASHINGTON – The government released a quartet of reports Wednesday that paint a bleak picture of the nation’s economy: Jobless claims remain at recessionary levels, Americans cut back on their spending by the largest amount since the 2001 terrorist attacks, orders to U.S. factories plummeted, and new-home sales fell to the lowest level in nearly 18 years.
Despite the grim news, the stock market continued to gain confidence in the nation’s financial system, bolting higher Wednesday and propelling the Dow Jones industrials and Standard & Poor’s 500 index to their first four-day advance since last spring.
The market reversed losses from earlier in the session after President-elect Barack Obama pledged he would have a plan to deal with the nation’s economic crisis on his first day in office. After filling more spots to his economic team, Obama stated that “help is on the way.”
The Labor Department reported that initial requests for unemployment benefits fell to a seasonally adjusted 529,000 from the previous week’s upwardly revised figure of 543,000. But claims remain at recessionary levels. The four-week average, which smooths out fluctuations, rose to 518,000, its highest level since January 1983, when the economy was emerging from a steep recession.
One minor bright spot showed the number of people continuing to claim unemployment insurance dropped unexpectedly to 3.96 million, from the previous week’s 4.02 million, which was the highest level in 25 years. The labor market has grown by about half since 1983.
Meanwhile, the Commerce Department reported that consumer spending plunged by 1 percent in October, even worse than the 0.9 percent decline that had been expected. Consumer spending accounts for two-thirds of total economic activity.
Orders to U.S. factories for big-ticket manufactured goods also plunged last month by the largest amount in two years. Orders for durable goods dropped by 6.2 percent, more than double the decline economists expected. The Commerce Department report showed widespread declines throughout manufacturing led by decreases in autos and airplanes.
The department also reported that new-home sales decreased 5.3 percent last month to a seasonally adjusted annual sales pace of 433,000 homes, the lowest level since January 1991, another period when the country was undergoing a steep housing downturn.
The median price of a new home sold in October fell to $218,000, down 7 percent from a year ago, and the lowest since September 2004.
The major stock indexes built on their gains Wednesday, but analysts cautioned that this latest advance came on light pre-holiday volume. The Dow is up 1,150 during the past four days, and the S&P 500 up almost 90.
Still, the market was putting together a string of advances that seemed impossible to achieve in the depths of selling that began in mid-September after the collapse of Lehman Brothers Holdings Inc.
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