Housing and jobless data signal a fragile recovery
Published: September 17,2009
Still, the reports suggested a slow and fragile economic recovery. The rise in housing starts was due solely to a jump in the volatile apartment-building category, and unemployment claims remain far above levels associated with a healthy economy.
And even as the housing industry begins to recover from its worst downturn in decades, a glut of unsold homes and record levels of home foreclosures are weighing on the industry.
Construction of single-family homes and apartments rose 1.5 percent to an annual rate of 598,000 units, the highest level since November, the Commerce Department said Thursday. That was slightly lower than the 600,000-unit pace economists had expected. And it remains more than 70 percent below the peak rate hit in 2006.
The tentative improvements in housing are most likely a rebound “from unsustainably weak results … reinforced by a temporary boost to demand” from the $8,000 first-time homebuyer tax credit that ends Nov. 30, Joshua Shapiro, chief economist at MFR Inc., wrote in a note to clients.
“Gains from here on will probably be much more difficult to achieve,” due to high unemployment, tight credit and the large number of homes already on the market, he said.
Applications for building permits, a gauge of future activity, rose 2.7 percent in August to an annual rate of 579,000 units, slightly below the 580,000 level that had been forecast. But for single-family homes, permits dipped 0.2 percent. They rose 15.8 percent for multifamily units.
The 1.5 percent rise in overall housing starts followed a small 0.2 percent dip in July. The August strength reflected a 25.3 percent surge in construction of multifamily units, a volatile sector that had fallen 15.2 percent in July.
Single-family home construction dipped 3 percent last month to an annual rate of 479,000 units, the first setback following five straight monthly gains.
Some economists held out hope that the drop would be temporary.
“A clear uptrend is emerging” in single-family homes, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
New-home construction could rise further in the next few months as builders respond to greater demand from first-time buyers for smaller homes, he added.
Initial claims for unemployment benefits dropped last week to a seasonally adjusted 545,000 from 557,000 the previous week, the Labor Department said. Wall Street economists had expected a small rise, according to Thomson Reuters.
The decline was the third in the past four weeks. The four-week average, which smooths out fluctuations, dropped to 563,000. Despite the improvement, that’s far above the 325,000 per week that is typical in a healthy economy.
The slow decline in unemployment claims may indicate that the recovery will be a relatively jobless one, similar to the rebounds from the 1991 and 2001 recessions, said John Canally, an economist at LPL Financial.
The number of people claiming jobless benefits for more than a week rose by 129,000 to a seasonally adjusted 6.2 million. The continuing claims data lags initial claims by one week.
When federal extended benefits are included, 9.01 million people received unemployment insurance in the week ending Aug. 29. That’s down from 9.16 million the previous week. Congress has added up to 53 weeks of extended benefits on top of the 26 weeks provided by the states.
Some economists said the overall housing construction gain was an encouraging sign that the worst is over for that troubled market.
“This sector is likely to start adding to growth rather than holding back the economy,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Regionally, construction rose 23.8 percent in the Northeast and 0.9 percent in the Midwest. Activity was flat in the West and fell 2.4 percent in the South.
Builders have been ramping up because buyers want to take advantage of the federal tax credit. The National Association of Home Builders said this week that its housing market index rose one point to 19 in September, reflecting growing optimism in the industry about rising home sales.
Homebuilders’ stocks jumped after the release of that report and mostly moved higher early Thursday. Shares of Beazer Homes USA Inc. jumped more than 6 percent and Hovnanian Enterprises Inc. rose more than 3 percent in mid-afternoon trading. Financial results for homebuilders also were better than expected in the latest quarter.
The Dow Jones U.S. Home Construction Total Stock Market Index has surged since bottoming in November but remains about 72 percent below the level achieved at its recent peak in 2005.
Thursday’s reports come a day after the Federal Reserve said production by the nation’s factories, mines and utilities rose for the second straight month in August, another sign the recession is ending.
But the economy isn’t improving fast enough to spur greater hiring. Fed Chairman Ben Bernanke on Tuesday said the recession is likely over but added that the economy isn’t likely to grow fast enough to lower unemployment anytime soon.
The jobless rate is widely expected to peak next year above 10 percent, up from its current 9.7 percent. Some analysts say that claims need to drop below 400,000 before the unemployment rate will start to decline.
More job cuts were announced this week. Drugmaker Eli Lilly & Co. said Monday that it will cut 5,500 jobs over the next two years, 14 percent of its work force, as it restructures the company into five business units.
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