Joblessness grows, housing shrinks

WASHINGTON — The number of newly laid-off Americans filing jobless claims and the pace of home construction both posted worse-than-expected results in government data released Thursday, lending urgency to the economic-recovery plan President Barack Obama and Congress are scrambling to advance.

The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.

The reports "paint a bleak economic landscape ahead," said Stuart Hoffman, chief economist at PNC Financial Services Group.

The unemployment rate last month bolted to a 16-year high of 7.2 percent. Last year, 2.6 million jobs vanished, the most since World War II.

First-time applications for unemployment benefits jumped last week by 62,000 to 589,000, the Labor Department reported. That was much more than the 540,000 tally economists expected. It left claims matching a 26-year high reached four weeks ago, although the work force has grown by about half since then.

The number of unemployed people continuing to draw jobless benefits soared by 97,000 to 4.6 million. That figure, too, was above analysts' expectations, and was up considerably from a year ago, when 2.7 million people were receiving such aid. The pickup shows that those out of work are having trouble finding a new job.

Some economists believe the number of people continuing to draw unemployment benefits could rise to 5.5 million — possibly more — this year even if a new stimulus package is enacted.

Meanwhile, the miserable state of the U.S. housing market was in full view Thursday, and the outlook remains dim.

The Commerce Department reported that new-home construction plunged 15.5 percent in December to an annual rate of 550,000 units, an all-time low, capping the worst year for builders on records dating back to 1959. Last month's performance was weaker than economists expected, and shattered the previous record low set in November.

"The extent of the decline was breathtaking," said Joel Naroff, president of Naroff Economic Advisors. "Home builders were simply sitting around watching the grass grow, and conditions are not likely to change soon."

For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.

The report also showed that applications for building permits — considered a reliable sign of future activity — sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.

Rising defaults, tighter lending standards and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

The collapse of the once high-flying housing market has been devastating to the United States' economic health.

Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a painful recession now in its second year.

The Obama administration wants to ramp up efforts to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.

The Federal Reserve has taken a number of extraordinary steps with the hope of providing some relief. It is buying certain types of mortgage securities and has slashed a key interest rate to a record low of between zero and 0.25 percent. To help brace the economy, the Fed is expected to hold rates at that level at its meeting next week and probably for the rest of this year.

In other housing-related news, rates on 30-year mortgages climbed above 5 percent this week, ending a five-week streak at record low levels. Average rates on 30-year fixed mortgages rose to 5.12 percent this week, from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971, the mortgage giant reported.

Builders and economists are skeptical about the prospects of a housing turnaround. Unemployment last month hit a 16-year high of 7.2 percent and is expected to march upward this year — a situation that can put stresses on existing home owners and make it less likely new buyers will stream into the market.

Against this backdrop, Patrick Newport, economist at IHS Global Insight, summed up the outlook: "More pain ahead."

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