New-home sales fall; jobless rate up

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By David M. Dickson

Three key economic indicators nosedived Thursday, lending statistical evidence to President Bush's dire warnings about the economy and adding to the sense of urgency surrounding the administration's bailout plan.

New-home sales plunged and orders for durable goods fell steeply in August while initial unemployment claims soared last week, a trifecta of bad economic news that threatened to tip the U.S. economy into a recession, if one has not already begun.

"The market has taken three straight punches to the jaw today," said Patrick Newport, U.S. economist for Global Insight.

He described the Commerce Department report on orders and shipments of big-ticket manufactured goods as both "miserable" and "ominous."

The initial claims for unemployment, swelled by recent hurricanes, reached their highest level since the aftermath of the terrorist attacks of Sept. 11, 2001, when the U.S. economy was already mired in recession, the Labor Department reported.

New-home sales plunged 11.5 percent from July to August, reaching their lowest annual rate since January 1991, when the economy neared the bottom of a recession. The median price for a new home fell 6.2 percent from a year earlier, hitting a four-year low of $221,900, the Department of Housing and Urban Development reported. New-home sales were down 34.5 percent from a year ago.

Fannie Mae and Freddie Mac are trying to breathe some life into the moribund real estate market. Since regulators seized control of the mortgage-financing giants early this month, the two companies have been pouring more money into the mortgage markets.

During the first two weeks under government control, average 30-year fixed rates declined by more than half a percentage point to 5.78 percent, newly appointed Freddie Mac Chief Executive Officer David Moffett told the House Financial Services Committee Thursday. But recent credit-market turmoil lifted the 30-year fixed rate above 6 percent last week, Freddie Mac reported.

The August report on durable goods - which include autos, appliances, machine tools and other goods expected to last three years or longer - "confirmed a sharp loss of momentum in manufacturing and capital spending, consistent with our expectation that growth is grinding lower this quarter," said Aaron Smith of Moody's Economy.com. New orders in the troubled motor vehicles and parts sector plunged 8.1 percent - their lowest level in more than a decade.

Mr. Smith attributed the unexpectedly large 4.5 percent decline in durable goods orders to fading export strength and to stepped-up cost cutting by U.S. businesses responding to weaker consumer spending.

In recent quarters, exports have played a major role in boosting U.S. economic growth, but overseas economies have already begun to decline, jeopardizing the robust expansion in the U.S. export sector. Meanwhile, inflation-adjusted consumer spending declined in June and July, and retail sales figures for August were disappointing.

Even after adjusting for the impact of the Gulf Coast hurricanes, recent initial jobless claims are still running higher than they did during much of the 2001 recession, said Andrew Gledhill of Moody's Economy.com. The private-sector labor market, which has already shed more than 770,000 jobs since November, appears to be "contracting sharply," he said.

Both Global Insight and Moody's Economy.com, among other economic forecasters, expect U.S. economic growth to decline in the fourth quarter.