UNEMPLOYMENT DOWN BUBBLE

DOWN BUBBLE CONTINUES – RIPPLE EFFECT SINKS CIVIC BUDGETS

New claims for jobless benefits in the US fell last week but still remain above the level economists have said is necessary to create jobs.

Meanwhile, a separate report showed a surprise rise in pending home sales in July, lifting hopes that the beleaguered housing market may have reached a bottom.
Initial jobless claims fell by 6,000 to 472,000, labour department figures showed on Thursday. Economists had expected claims to fall to 470,000 from the 473,000 level originally reported the prior week, which was revised to 478,000 on Thursday. The less volatile four-week average also declined, falling back 2,500 to 485,500.

The data “underscore that the labour market remains very weak. The claims numbers continue to be at higher levels than you would expect given the payroll results”, said Joshua Shapiro, chief US economist at MFR. “I don’t see the overall economy growing.”

The report comes ahead of Friday’s closely watched government unemployment report, which is expected to show that the US economy shed 80,000 jobs in August. The unemployment rate is forecast to rise slightly to 9.6 per cent.

On Wednesday, a report from ADP Employer Services said that the private sector cut 10,000 workers last month, the first monthly decline this year, as small and mid-sized businesses came under pressure.

The number of people continuing to claim unemployment insurance fell by 23,000 to 4.456m as long-time idle workers saw their benefits expire.

Claims for emergency benefits also declined, falling 281,676 to 4.546m

The biggest declines in claims came in California, Ohio and Michigan, while Florida, Iowa and Maryland saw the largest increases.

Economists said claims need to fall to the low 400,000 level before the economy can sustainably create jobs.

Separately, pending home sales rose unexpectedly in July after falling sharply in the months following the expiration of the government’s first-time homebuyer tax credit in April.

Thursday’s report from the National Association of Realtors showed that the pending sales index, which tracks deals that have been signed but not yet closed, rose 5.2 per cent to 79.4 from June. Economists had expected a 1 per cent fall in July after the index hit a record low of 75.7 last month.

Paul Dales, US economist at Capital Economics, cautioned that the surprise rise is a continued effect of the tax credit, which brought many sales forward to the spring from the summer. July’s increase is a “rebound as the pipeline starts filling up again.”

“It’s a good thing, but the key point is that the level of pending home sales is still below those seen before the tax credit even began”, he said. July sales were 19.1 per cent below their July 2009 level, the NAR report showed.

The housing market is likely to experience distortions from the credit for another three or four months, Mr Dales added.

“Economic conditions that tend to underpin housing activity are really weak at the moment”, he said. That includes an unemployment rate of 9.5 per cent and “languishing” levels of mortgage applications despite record-low mortgage rates.

Remain cautious. Keep your eye on the ball.

Berny Dohrmann
Chairman www.ceospace.net