Worse-than-expected news on unemployment and home sales Thursday dampened optimism that a broad economic recovery might be near.
Many analysts don’t expect the housing slide to show signs of stabilizing until the second half of this year. They said layoffs may be at their high point, but that the jobless rate, already at a 25-year high, will keep rising until the middle of 2010.
The Labor Department reported Thursday that initial claims for unemployment compensation rose to a seasonally adjusted 640,000 last week, up from a revised 613,000 the previous week.
Meanwhile, the National Association of Realtors said sales of existing homes fell 3 percent in March to a seasonally adjusted annual rate of 4.57 million units, with February revised down to 4.71 million units. Sales had been expected to fall to an annual rate of 4.7 million units, according to Thomson Reuters.
Wall Street closed Thursday with modest gains despite the gloomy reports.
The Dow Jones Industrial Average closed at 7,957.06, up 70.49 points, while the broader Standard & Poor’s 500 Index ended the day at 851, up 8.37, and the tech-heavy Nasdaq Composite Index closed at 1,652.21, up 6.09.
The best reading of the new data is that late last year’s free-fall is coming to an end, analysts said.
“The economic downturn remains intense, but it is no longer intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “We are still falling, but we are no longer crashing.”
Mr. Zandi said the weekly number of new applications for unemployment benefits, a key measure of layoffs, has begun to level off at a very high point. The unemployment rate, however, will keep rising for the rest of this year and into 2010 since it measures layoffs and the ability of new entrants into the labor market to find a job, he added.
On the housing front, IHS Global Insight economist Patrick Newport is still forecasting further declines in construction, sales and prices. He expects existing home sales will bottom out in the second half of this year, partly reflecting a significant improvement in affordability.
IHS forecasts unemployment, currently at a 25-year high of 8.5 percent, will peak at 10.2 percent in the spring and summer of next year, Mr. Newport said.
The latest weekly report on jobless claims showed losses remain high. The four-week average of claims, which smooths out volatility, dropped slightly to 646,750, about 12,000 below the peak in early April. Goldman Sachs economists have said a decline of 30,000 to 40,000 in the four-week average is needed to signal a peak.
In another sign of labor market weakness, the number of people continuing to claim benefits rose to 6.13 million, setting a record for the 12th straight week.
The report from the National Association of Realtors showed that the median sales price for an existing home in March plunged to $175,200 from $200,100 a year earlier.
With unemployment rising and the mortgage crisis far from over, foreclosures and distressed sales are dominating the market - especially in California, Florida, Nevada and Arizona. Realtors estimate about half of sales nationwide are from foreclosures or other distressed properties.
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