Numbers Paint Gloomy Picture
Friday, February 27, 2009
Orders for autos, appliances and other durable goods plummeted for the sixth month in a row in January and the number of first-time claims for unemployment benefits shot up unexpectedly last week, intensifying fears about the economy's rocky descent.
Just a few months ago, analysts had been forecasting that the last few months of 2008 would be the worst of the recession and that the first quarter of the new year would bring a slight improvement. Now, however, the first quarter is shaping up as a contender for the title of "recession's worst."
"I've been pretty pessimistic all along, but [the numbers] came in worse than I expected, and that's pretty bad," said Dean Baker, an economist with the Center for Economic Policy and Research. "You worry this is just a free fall."
Just how the first quarter ends up stacking up to the previous ones will depend on the government's assessment of the economy's performance in the final months of 2008. Today, the government is expected to update its initial estimate that the economy contracted at an annualized rate of 3.8 percent in the fourth quarter. Most analysts anticipate that will be revised to negative 5 percent.
Businesses have slashed production sharply and put off buying new equipment and technology to bring output in line with the sudden fall in demand, according to Commerce Department data released yesterday. But the numbers indicate companies haven't been able to cut fast enough.
Inventories fell in January for the first time in 16 months, by 0.8 percent, a sign that businesses have started to shrink stockpiles of unsold goods. But sales still fell faster than inventory levels.
New orders for autos, washing machines and other items built to last at least three years fell 5.2 percent in January, compared with a drop of 4.6 percent in December. The biggest decline came in orders for defense spending. In previous months falling auto sales were the main culprit. Excluding defense spending, which can vary widely month-to-month, durable goods orders fell 2.3 percent.
Production cuts led to job cuts, driving up unemployment rolls. The number of first-time jobless claims rose to 667,000 last week, an increase of 36,000 from the previous week.
The number of people on unemployment also climbed, partly because of an extension of benefits in several states. As of Feb. 14, 5.1 million people were collecting unemployment, an increase of 114,000 from the previous week. The unemployment rate nationwide is 7.6 percent.
Meanwhile, the downturn in the housing market, now in its third year, appears to be accelerating even though houses have become more affordable, according to data released yesterday by the departments of Commerce and Housing and Urban Development.
Builders slashed prices to try to lure buyers. The median price of a new single-family home in January was $201,100, 13.5 percent lower than it was a year earlier. The Federal Reserve has also sought to keep mortgage rates low.
Yet, sales of new homes fell more than expected in January to a seasonally adjusted annual rate of 309,000. That is a decline of more than 48 percent compared with January 2008. It would take 13.3 months to sell the existing inventory of new homes, another record.