July 12, 2010 -- New applications for jobless benefits rose to the highest level in nearly six months, painting a picture of an economic recovery slowing to a halt and raising fears of a double dip recession.
The number was eye-opening and unexpected. Economists had actually predicted that the number of Americans filing new unemployment claims would actually fall. They were wrong.
Jobless Claims Highest Since February
The number of American workers filing new unemployment claims jumped to 484,000, the highest total since February.
"Any way the data is cut, the numbers are dismal for unemployment," Diane Swonk, chief economist for Mesirow Financial, said.
Initial claims have risen three of the last four weeks and are close to matching their highest point reached in late January of 490,000. An economy with healthy hiring typically has claims under 400,000.
With more than 14 million Americans looking for work, 25 million people if you count those who've given up, the economic domino effect is clear.
"This confirms, unfortunately, our reality, and that is that not only is the recovery growing at a subpar pace but actually losing momentum and this is something that you really worry about when you don't have much momentum to begin with," Swonk said.
Banks Repossessing Homes At Record Rate
Families, increasingly, are having trouble holding onto their homes. Banks are now taking over homes at a near record pace.
In July, 92,858 homes were taken by the banks, up 9 percent in just one month. By comparison, banks repossessed about the same amount in all of 2005, before the recession. Now, we're seeing that many in a month.
Rick Sharga, senior vice president of RealtyTrac, said that the high levels of unemployment can be tied to foreclosure.
He said that the nation is in the second wave of a three wave foreclosure cycle. The first wave of foreclosures was caused by overpriced homes and toxic loans that were written on properties, Sharga said. The first wave resulted in high levels of unemployment and those high levels of unemployment have led to the latest round of foreclosures.
"Most foreclosures right now are being driven by unemployment and the higher the unemployment rates go, the higher the foreclosure activity is bound to follow," Sharga said.
Sharga thinks that it will be another year of record levels of foreclosures before the housing market settles down.
"What we're really dealing with right now is a historically unprecedented cycle that will take a couple of years to unwind before we can really get back to anything resembling normal," Sharga said.
The New Normal?
It's that reality that led to chaos in an Atlanta street yesterday, tens of thousands lined up just get an application to get on a waiting list for housing help.
The desperation led to fights among those in the crowd. Tempers reached a boiling point, fueled by an unemployment rate that remains stubbornly stuck at nearly 10 percent.
Now, a growing number of economists ask is this jobless recovery all part of a "new normal."
Professor Laura Tyson from the Haas School of Business said that history shows that it takes a long time for economies to recover from great financial crises.
"The new normal is a very slow economy," Tyson said. "It's a slow economy with a very high unemployment rate and only coming down gradually."
Tyson isn't sure Americans will ever spend like they did before the recession.
"The old normal was the U.S. consumer was spending at a rapid rate in excess of his or her income on average," Tyson said. "The U.S. consumer can't go back to that, they've lost too much wealth, they have to bring their debt levels down. Therefore, whatever we are going to is going to be different."