Economy weakens as new-home sales drop, durable orders tumble
WASHINGTON -- Orders for big-ticket items plunged at the fastest rate in seven months in August while the pace of new-homes sales dropped to its lowest level in more than 17 years, the government said Thursday in separate reports. The reports underscored the weakness in the economy going into the financial turmoil that rapidly escalated in September.
Last week, the number of Americans signing up for first-time unemployment benefits jumped in part because businesses were shuttered in the wake of hurricanes Ike and Gustav. Even aside from the hurricanes' effects, the numbers pointed to a weakening job market.
The data, along with other reports out in recent weeks, suggest a "recession is inevitable," Joel Naroff, head of Naroff Economic Advisors, said in a note to clients.
Orders for durable goods, long-lasting items like cars and refrigerators, dropped 4.5% in August as demand for machinery, cars, aircraft and other items fell, the Commerce Department said. It was the sharpest drop since January.
A gauge of business investment, orders for non-defense capital goods excluding aircraft, fell 2%, the biggest decline since January 2007.
The news did not bode well for the manufacturing sector, which has fared OK this year as strong export demand has cushioned the blow of the deteriorating domestic economy. But Federal Reserve Chairman Ben Bernanke warned this week that export growth will likely ease given softening economies abroad.
"U.S. manufacturing remains in a weak and uncertain state," says Cliff Waldman, economist for the Manufacturers Alliance/MAPI.
The housing market, meanwhile, continued to deteriorate.
Monthly pace of new homes plunged 11.5% in August from the prior month and were down 34.5% from August 2007, Commerce said. New homes sold at a pace that would result in 460,000 yearly sales, the lowest rate since January 1991, when the economy was in recession.
There were also signs of a worsening job market out Thursday.
The Labor Department said the number of Americans filing for first-time unemployment benefits jumped 32,000 last week to a seasonally adjusted 493,000, the highest in seven years. The department said approximately 50,000 of those claims were likely a result of people being out of work because of hurricanes Gustav and Ike.
