Home Construction Down in July

Amish workers build a house, Tuesday, Aug. 14, 2007, in Pepper Pike, Ohio. Consumer spending and confidence is under pressure from a slumping housing market and recent turbulence in the financial markets. (AP Photo/Tony Dejak) (Tony Dejak - AP)

In a second report, the Labor Department said Thursday that the number of newly laid off workers filing for unemployment benefits rose by 6,000 last week to 322,000, an unexpected increase. Analysts had been looking for a decline of around 1,000.

Applications for building permits, considered a good barometer of future activity, fell by 2.8 percent in July to an annual rate of 1.373 million units.

Housing construction fell in all parts of the country except the Midwest, which posted a 2.6 percent increase in July. Construction starts were down 11 percent in the South, 3.7 percent in the West and 1.3 percent in the Northeast.

The current housing slump is the worst since a downturn that occurred during an economic recession in 1990-91.

Overall economic growth has slowed, but so far there has been no recession as other sectors have offset the weakness in housing. However, private economists say the threat of a recession will rise if the financial markets' troubles erode consumer and business confidence.

Seeking to reassure investors, Treasury Secretary Henry Paulson said in an interview that the sharp downturn in financial markets "will extract a penalty on the growth rate" but the economy and markets were strong enough to absorb the losses without a recession.

"Looking over periods of stress that I've seen, this is the strongest global economy we've had," said Paulson, a 32-year veteran of Wall Street, said in an interview published Thursday in the Wall Street Journal.

The drop in housing construction followed news from the National Association of Realtors that sales of existing home fell in 41 states in the April-June quarter while one-third of metropolitan areas surveyed experienced price declines.