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Economy still going south

Dismal data on jobless claims and durable goods are worse than expected. New-home sales tumble 10.2%.

February 27, 2009|Associated Press

WASHINGTON — As bad as it is, the economy keeps getting worse -- and government figures released Thursday provided more evidence that the downward spiral won't end soon.

The number of Americans seeking unemployment benefits topped 5 million for the first time since record-keeping began in 1967. And the number of first-time claims hit 667,000, the highest level in more than a quarter-century. Both figures were worse than experts expected.

Orders for cars, computers, machinery and other durable goods plunged a larger-than-expected 5.2% in January as global economic troubles reduced demand from customers at home and abroad.

"We have been looking for signs that the economy's rate of decline might be slowing but can't find any," said Nigel Gault, chief U.S. economist at consulting firm IHS Global Insight.

The government reports offered more evidence that consumers are scaling back purchases as jobs vanish, home prices drop and stock portfolios shrink. Those factors fuel more job and spending cuts by profit-starved businesses.

"The hope is that policy efforts by the federal government will be able to break that cycle," said Zach Pandl, an economist at Nomura Securities International. "But it's still going to take some time before that happens."

Initial jobless claims jumped to 667,000 last week, the Labor Department said, from the previous week's figure of 631,000. Analysts had expected a slight drop in claims, which are now at the highest level since October 1982, though the workforce has grown by about half since that time.

The four-week average of initial claims, which smooths out fluctuations, rose to 639,000, the highest in more than 26 years.

And the number of people claiming benefits for more than one week reached 5.1 million, the highest total on record dating to 1967 and the fifth straight week that continuing claims have reached new highs.

JPMorgan Chase & Co. added to the bad news Thursday, saying it would eliminate about 12,000 jobs as it absorbs the operations of failed savings and loan Washington Mutual Inc. That figure includes 9,200 cuts announced previously and 2,800 jobs expected to be lost through attrition.

Besides cutting jobs, companies are reducing their orders for new equipment. The Commerce Department's latest report on U.S. factory activity showed orders falling for a record sixth straight month. The previous record of four straight declines was set in 1992.

The weakness was widespread in January, with orders for cars, metal products, machinery, computers and electrical equipment, and household appliances all posting declines.

A third report Thursday showed that new-home sales tumbled 10.2% to a seasonally adjusted annual rate of 309,000 last month, the worst showing on government records going back to 1963.

The median sale price fell to $201,100 in January, a record 9.9% drop from the previous month. The median price is the midpoint, where half of homes sell for more and half for less. But even lower prices and low mortgage rates have not eased the housing slump.

The negative data mean the economy probably shrank at the end of last year by more than the government had estimated, economists said, and the first quarter of this year could be worse.

The Commerce Department today will release a revised estimate of U.S. gross domestic product for last year's fourth quarter. Wall Street economists expect the government to report that the economy shrank 5.4% in the October-December period, even worse than its initial estimate of a 3.8% drop.

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