Another Blow to the Economy and Housing

Written by: David Lereah   Tue, February 10, 2009 Market Activity

The nation’s battered labor market took another hit this past week as employers cut another 598,000 jobs off of U.S. payrolls in January. The unemployment rate rose to 7.6 percent, the highest level since September 1992. The job loss is the worst since December 1974 and takes job losses to 1.8 million in the last three months. Businesses are laying off workers at a pace not seen since World War II. It has never been more apparent that bold fiscal action is needed to restore our nation’s labor markets and jump-start the economy.
Other economic indictors echoed the dismal labor report. Auto sales fell to an annualized pace of 9.5 million units in January, the lowest pace since 1982. This report was troubling and reflects very weak consumer demand for big ticket items such as autos and homes. Factory orders fell 3.9 percent in December for the fifth consecutive monthly decline. The manufacturing sector is contracting in magnitude not seen since World War II. And weekly jobless claims increased by 35,000 to 626,000 for the week ending January 31. It is clear that business confidence is weakening as companies continue
to lay off workers at an alarming pace.
On the housing side, the pending home sales index rose 6.3 percent in December, exceeding expectations. The rise in this index probably reflects households responding to lower mortgage rates in December. The index suggests a mild rise in future existing home sales in the coming months but we are mindful that there could be some fallout from a home contract to a home closing. Finally, the purchase application index for the week ending January 30 fell 11.2 percent to 261.4, while the refi index rose 15.8 percent to 3,906.3. The rise in the purchase index was disappointing news and likely reflects a modest rise in mortgage rates during the week.

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