Weak U.S. Job Market Weighs On Broader Economy
WASHINGTON (AP) — The sluggish job market is weighing on the U.S. economy three years after the Great Recession ended and it doesn't look to be getting much better any time soon.
A measure of the number of people applying for unemployment benefits over the past month is at a six-month high, the government said Thursday. That suggests June will be another tepid month for hiring.
Sales of previously occupied homes fell in May, and manufacturing activity in the Philadelphia region contracted for the second straight month in June.
The gloomy economic data sent stocks sharply lower. The Dow Jones industrial average fell 175 points in afternoon trading. Broader indexes also tumbled.
"It appears the slow-growth expansion will be slower," said John Silvia, chief economist at Wells Fargo Securities, in a note to clients.
Thursday's raft of economic reports was mostly disappointing:
— Applications for unemployment benefits dipped last week to 387,000, from an upwardly revised 389,000 the previous week, the Labor Department said. The four-week average, a less volatile measure, rose to 386,250, the highest level since December. When applications are above 375,000, hiring is likely to remain too weak to rapidly lower the unemployment rate.
— Home sales fell 1.5 percent in May from April to a seasonally adjusted annual rate of 4.55 million, the National Association of Realtors said. Sales are up 9.6 percent from a year ago, suggesting that the housing market is slowly improving. But the annual sales rate is well below the 6 million that economists consider healthy.
— The Philadelphia Federal Reserve Bank said that its index of regional manufacturing activity fell sharply to -16.6 from -5.8. That's the lowest level in almost a year. A reading below zero indicates contraction. Measures of new orders and shipments also plummeted.
— A measure of future U.S. economic activity rose in May to its highest level in four years, one of the few positive signs Thursday. The Conference Board's index of leading economic indicators increased to 95.8. That's the highest level since June 2008, which was six months into the recession. Still, prior to the recession, the index routinely topped 100.
The bad news echoed a more pessimistic outlook delivered by the Federal Reserve Wednesday after its two-day policy meeting. The Fed sharply reduced its growth forecast to between 1.9 percent and 2.4 percent for the year. That's half a percentage point lower than the Fed's previous estimate in April.
In an effort to boost growth and hiring, the Fed said that it would extend a program intended to drive down long-term U.S. interest rates. Fed Chairman Ben Bernanke hopes that will encourage more borrowing and spending.
Hiring slowed sharply in April and May, raising concerns about the strength of the recovery. Employers have added an average of only 73,000 jobs per month in April and May. That's much lower than the average of 226,000 added in the first three months of this year.
The report on unemployment applications suggests it won't improve much in June, economists said.
Some economists warned the weaker job market could start to affect home sales, which until recently were starting to show some modest improvement.
Fewer first-time buyers, who are critical to a housing recovery, purchased homes in May. And sales declined in every region of the country except the Midwest.
"Not a surprise that existing home sales took a step back in May," said Jennifer Lee, an economist at BMO Capital Markets. "Softening job growth could slow the housing recovery."
There was one positive sign in the housing report: The supply of homes for sale remains low. The inventory of unsold home in May was just 2.49 million, roughly the same as April. It would take about six months to exhaust the supply at the current sales pace, a ratio last seen in 2006 when the housing market was booming.
A low supply typically encourages more people to put homes up for sale. That generally improves the overall quality of the homes on the market, which drives prices higher.
The weaker manufacturing activity in the Philadelphia region likely reflects the worsening debt crisis in Europe, which has dampened demand for U.S. exports.
Despite the plunge in the survey, companies said they are more optimistic about business conditions in six months. A gauge of future expectations rose to 19.5 in June from 15 the previous month.
Economists cautioned that the Philly Fed index is volatile and does not always reflect the state of manufacturing nationwide.
Paul Dales, an economist at Capital Economics, pointed out that the index fell sharply last August but then bounced back into positive territory two months later.
"The weight of the evidence therefore suggests that the easing in demand in Europe and Asia is taking a toll on the U.S. economy," but that it is still growing, he said in an email to clients.