February 25, 2011 in Business

New-home sales drag on economy

Plunge in January dampens other encouraging signs of recovery
Derek Kravitz Associated Press
 

WASHINGTON – Sales of new homes plummeted in January, and businesses ordered fewer long-lasting goods. But the number of people applying for unemployment benefits has fallen over the past four weeks to the lowest level in two-and-a-half years.

Together, the government reports Thursday sketched a mixed picture. They suggest that the struggling housing industry remains a drag on an economy that’s growing slowly but steadily.

The reports showed:

• New-home sales dropped 12.6 percent last month to a seasonally adjusted annual rate of 284,000, the Commerce Department said. That’s less than half the pace economists consider healthy. The drop is a worrisome sign because it follows the worst year for new home sales in nearly 50 years.

• Companies’ orders for long-lasting manufactured goods, excluding the volatile aircraft and auto categories, dropped 3.6 percent last month, Commerce said in a separate report. The drop followed two months of gains. One category that’s viewed as a proxy for business investment spending fell by the largest amount in two years.

Overall, orders for durable goods rose 2.7 percent, driven by a jump in commercial aircraft orders. Still, orders totaled around $200 billion. That’s considered a healthy level, and it’s 25 percent above the recession low hit in March 2009.

• Applications for unemployment benefits dropped by 22,000 last week to a seasonally adjusted 391,000, the Labor Department said. It was the third decline in four weeks.

The four-week average for applications, a less volatile figure, fell to 402,000. It was the fewest since late July 2008 and a sign that the job market is slowly improving.

Layoffs have fallen to pre-recession lows. And the downward trend in applications for unemployment benefits indicates they are dropping further. Still, employers aren’t hiring enough to lower high unemployment.

Applications for unemployment benefits below 425,000 tend to signal modest job creation. But they would need to dip consistently to 375,000 or below to indicate a significant drop in the unemployment rate. Applications for benefits peaked during the recession at 651,000.

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