WASHINGTON — The U.S. economy is looking bleaker as new applications for jobless benefits rose last week to the highest level in almost six months and another report showed the number of homes lost to foreclosure soared in July.
First-time claims for jobless benefits edged up by 2,000 to a seasonally adjusted 484,000, the U.S. Labour Department said Thursday. That’s the highest total since February.
Analysts had expected claims to fall and say the increase suggests companies won’t be adding enough workers in August to lower the 9.5 per cent U.S. unemployment rate.
Initial claims have now risen in three of the last four weeks and are close to their high point for the year of 490,000, reached in late January. The four-week average, which smooths volatility, soared by 14,250 to 473,500, also the highest since late February.
The report “represents a very adverse turn in the labour market, threatening income growth and consumer spending,” Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.
The total number of people receiving benefits dropped 118,000 to 4.45 million, the department said. But that doesn’t include another 5.3 million people receiving extended benefits paid for by the federal government, as of the week ending July 24, the latest data available.
Even the lowest mortgage rates in decades is a gloomy sign for the economy. Average rates on 30-year fixed mortgages fell to 4.44 per cent, Freddie Mac said Thursday. While that’s good for people looking to refinance or buy a home, low rates haven’t been enough to energize a struggling housing market.
And the drop suggests investors are losing confidence in the recovery. Mortgage rates track the yields on U.S. Treasurys. They are falling because investors are shifting more money away from stocks and into the safety of Treasurys. Those yields were pushed even lower this week after the Federal Reserve downgraded its assessment of the economy on Tuesday and announced a program to buy more Treasurys to help lift the recovery.
The stock market has been falling since the Fed’s more pessimistic outlook. The Dow Jones industrial average dropped more than 60 points in early afternoon trading Thursday, and is down more than 300 points for the week.
Economists closely watch weekly jobless claims, which are considered a gauge of the pace of layoffs and an indication of employers’ willingness to hire.
The government’s July jobs report, released Friday, showed that the economy lost a net total of 131,000 jobs last month. Excluding the impact of the elimination of 143,000 temporary census jobs, the economy added a meagre 12,000 positions, as layoffs by state and local governments almost cancelled out weak hiring by businesses.
Thursday’s report on jobless claims indicates that trend may not change soon. Claims fell steadily last year from their peak of 651,000, reached in March 2009. But they have mostly levelled out this year at or above 450,000. In a healthy economy with rapid hiring, claims usually drop below 400,000.
The rise in claims is a sign that private employers may be ramping up layoffs, which declined as recently as June, according to a separate government report released Wednesday.
States with the largest increases in claims two weeks ago cited rising layoffs in the construction and manufacturing industries. The state data lags the national report by one week.
Claims could also be rising because of large job cuts by state and local governments, which are struggling with unprecedented budget deficits. State and local governments cut 48,000 jobs in July, the most in a year.
Some economists speculate that many census workers whose jobs are finished are requesting unemployment benefits. Another possibility is that small companies, facing tight credit, are still reducing their staffs, even as larger corporations slowly resume hiring.
The report comes after the Federal Reserve said Tuesday that “employers remain reluctant to add to payrolls.”
And on Wednesday, the Commerce Department said June imports jumped while exports dropped. That pushed the trade gap to its widest point since October 2008. Many economists say that could reduce economic growth estimates in the April-to-June quarter to 1.2 per cent — half the 2.4 per cent annual rate the government estimated last month.
That’s a sharp slowdown from the five per cent growth in the final quarter of 2009 and the 3.7 per cent pace in the January-to-March quarter. That weakening could be prompting more employers to cut staff, or at least hold off on hiring.
Meanwhile, the number of U.S. homes lost to foreclosure surged to 92,858 properties in July, up nine per cent from June and an increase of six per cent from July 2009, foreclosure listing firm RealtyTrac Inc. said Thursday.
Banks have stepped up repossessions this year to clear out the backlog of bad loans. July makes the eighth month in a row that the pace of homes lost to foreclosure has increased on an annual basis.
Still, the number of homeowners who have fallen behind on their payments remains high, and these borrowers are being allowed to stay in their homes longer. That’s partly because lenders are reluctant to add to the glut of foreclosed homes on the market. They also are swamped with an unprecedented number of defaulting properties and have been overwhelmed by the volume.
The number of properties receiving an initial default notice — the first step in the foreclosure process — rose one per cent last month from June, but was down 28 per cent versus July last year, RealtyTrac said.
Economic woes, such as unemployment or reduced income, are now the main catalysts for foreclosures. Initially, lax lending standards were the culprit, but homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures.
RealtyTrac estimates more than one million American households are likely to lose their homes to foreclosure this year. In all, 325,229 properties received a foreclosure-related warning in July, up four per cent from June, but down 10 per cent from the same month last year, RealtyTrac said. That translates to one in 397 U.S. homes.