Two cornerstones of the economy – jobs and housing – sank to new depths Thursday, with unemployment claims bolting higher and home prices recording one of their steepest drops on record.
The bleak reports underscored the self-reinforcing cycle hampering the economy: As home prices sink, foreclosures rise, banks feel pressure to shy away from lending and employers cut jobs.
Wall Street abruptly ended an earnings-driven rally and closed sharply lower Thursday after a steeper-than-expected decline in existing home sales and worries about the financial sector chilled the market's recent optimism. The major indexes fell about 2 percent, including the Dow Jones industrial average, which lost more than 280 points.
The Labor Department said the number of newly laid-off people filing for unemployment benefits rose to 406,000 last week, a jump of a seasonally adjusted 34,000. The last time jobless claims were higher was after the Gulf Coast hurricanes in 2005.
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The housing news wasn't any better: As sales of previously owned homes fell in June and a glut of unsold and foreclosed homes on the market, the value of Americans' biggest asset continued to sag.
The median price for a home sold in June was $215,100, a drop of more than 6 percent from a year earlier and the fifth-largest year-to-year price drop on record, the National Association of Realtors said. Sales of previously owned homes fell 2.6 percent, to an annualized rate of 4.86 million.
With companies laying off workers and new jobs increasingly hard to find, the ranks of new homebuyers could shrivel further, spelling even more trouble ahead for the housing market and the economy. Consumer spending, the lifeblood of the economy, is further in jeopardy.
“If you don't have a job or are concerned about keeping your job, you are not going to rush out to buy anything – let alone a home,” said Richard Yamarone, economist at Argus Research.
The economic problems are on the minds of voters and presidential candidates, not to mention Capitol Hill and the White House. The troubles are expected to persist into the next presidential administration.
The country's economic straits are the public's biggest worry by far. Forty-four percent listed the economy as the top concern in a new Associated Press-Ipsos poll, up from 39 percent in April.
The White House, while noting that layoff filings can bounce around from week to week, acknowledged the job market needs to be bolstered.
“The bottom line is that unemployment, while relatively low by historical standards, is still higher than we would like, and we continue to take action to return to strong job creation,” said White House press secretary Dana Perino.
Congress is nearing completion of a housing bill that President Bush is expected to sign. It aims to help some distressed homeowners avoid foreclosure and to shore up troubled mortgage giants Fannie Mae and Freddie Mac.