US Housing Market Struggles with Structural Job Losses in August 2010

The US economy has recently stumbled with worsening job losses. Today the US labor department released figures in Washington, which indicates that the seasonally adjusted rate of initial jobless claims in the U.S. rose to 484,000 in the week ending August 7, 2010, the highest level in almost 6-months.

Although initially decreasing steadily since the end of 2009, claims have now risen in three of the past four weeks and are close to their high point for the year of 490,000, reached in late January 2010.

The new data reinforces a bleak picture for the US economy, coming soon after last Friday’s Government July jobs report that showed the US economy lost 131,000 jobs last month, and the unemployment rate was at 9.5%.

An article today from the Associated Press stated:

The government’s July jobs report, released Friday, showed that the economy lost a net total of 131,000 jobs last month. Excluding the impact of the elimination of 143,000 temporary census jobs, the economy added a meager 12,000 positions, as layoffs by state and local governments almost canceled out weak hiring by businesses.

Thursday’s report on jobless claims indicates that trend may not change soon. Claims fell steadily last year from their peak of 651,000, reached in March 2009. But they have mostly leveled out this year at or above 450,000. In a healthy economy with rapid hiring, claims usually drop below 400,000.

The rise in claims is a sign that private employers may be ramping up layoffs, which declined as recently as June, according to a separate government report released Wednesday.

States with the largest increases in claims two weeks ago cited rising layoffs in the construction and manufacturing industries. The state data lags the national report by one week.

Claims could also be rising because of large job cuts by state and local governments, which are struggling with unprecedented budget gaps. State and local governments cut 48,000 jobs in July, the most in a year.

The U.S. Labor Department report “represents a very adverse turn in the labor market, threatening income growth and consumer spending,” Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.

Even the lowest mortgage rates in decades are a gloomy sign for the economy. Average rates on 30-year fixed mortgages fell to 4.44 percent, Freddie Mac said Thursday. While that’s good for people looking to refinance or buy a home, low rates haven’t been enough to energize a struggling housing market.

In a report on Aug 6, 2010, Dr. Sherry Cooper, Ph.D. – Executive Vice President, Chief Economist of BMO said that U.S. “housing and spending were crushed by the credit crisis, which began in the inflated housing sector while interest rates were still relatively low. The job losses have been cyclical, to be sure, but there is a large component of structural job loss as well, and these jobs will not be coming back.”

“Since the start of this year alone, state and local governments have reduced their workforces by 169,000, or nearly 1%. Further layoffs can be expected, even with the $26 billion in extra state aid passed by the Senate yesterday.”

“The situation is truly dire, with a record number of Americans receiving food stamp benefits. The Senate voted earlier this month to cut $12 billion from the food stamp budget in order to help fund the $26 billion package to help states avoid teacher layoffs,” added Cooper.

“It’s just one more indication the U.S. economy is slowing dramatically,” said Nariman Behravesh, chief economist at Lexington’s IHS Global Insight. “We don’t think we’re in a double-dip (recession) situation, but we do think we’re seeing very weak growth and any progress on reducing unemployment will be glacial.”

The U.S. July job gains were far below the 200,000 it takes for the unemployment rate just to hold steady and keep pace with the growing work force.

“If we don’t see significant job growth by the end of the year, the US economy could be in serious trouble,” said Bill Cheney, chief economist at John Hancock Financial Services in Boston.