Pressure on Economy Mounts As Oil Rises, Home Sales Drop
Wednesday, April 23, 2008
Further evidence of the strain on the U.S. economy emerged yesterday as the price of oil hit another record high, at nearly $120 a barrel, and a new report showed that sales of existing homes continued their decline in March.
The cost of gasoline at the pump also hit a new record, and the dollar tumbled to a historic low against the euro.
The multifaceted round of pessimistic news helped drive the Dow Jones industrial average of blue-chip stocks down nearly 105 points.
Light, sweet crude for May delivery rose to $119.90 before retreating to settle at $119.37 a barrel on the New York Mercantile Exchange. The falling dollar and news of pipeline disruptions in Nigeria helped to push up the price of oil, analysts said. The euro rallied against the dollar, trading above $1.60 for the first time since its 1999 inception.
Kevin Book, a senior energy analyst with Friedman, Billings, Ramsey Group, said big investors also have helped to drive up the price of oil over the past year in what he described as "classic bubble behavior," while demand has increased from developing economies such as China.
A survey of gas stations by the auto club AAA and the Oil Price Information Service showed that the price of a gallon of gas reached a national average of $3.51. Rising oil and gas prices could put further strain on big companies and consumers, economists said.
"This relentless run-up of the price of oil is just becoming an increasing threat to the U.S. economy, if not the global economy," said Stuart Hoffman, chief economist at PNC Financial Services Group. He added that high energy costs could be "a potential depressing factor on the earnings of companies."
The ongoing housing slump continues to be a major source of pain for consumers. A report by the National Association of Realtors yesterday showed that the volume of existing-home sales, adjusted for seasonality, declined 2 percent, to 4.93 million units, in March from 5.03 million in February.
The national median existing-home price for all housing types was $200,700 in March, down 7.7 percent from a year ago, when the median was $217,400, according to the report.
She said she expected home sales to decline through the summer and home prices to fall through the end of next year, as the number of homes foreclosed upon continues to drag down prices.
"Borrowing costs are high and consumer confidence is at recessionary levels, and potential buyers are remaining on the sidelines," Meyer said.
The Dow fell 0.82 percent, or 104.79, to close at 12,720.23. Broader stock indicators also fell, with the Standard & Poor's 500-stock index down 12.23, or 0.88 percent, at 1375.94 and the tech-heavy Nasdaq dropping 31.1, or 1.29 percent, to close at 2376.94.