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Layoffs, housing data point to chronic problems

WASHINGTON — Sour reports Thursday on the number of people who sought unemployment benefits and buyers of new homes illustrate what Federal Reserve Chairman Ben Bernanke acknowledged Wednesday: Many factors weighing on the economy are proving to be more chronic than first imagined.

Applications for unemployment benefits rose to a seasonally adjusted 429,000 last week, the Labor Department said Thursday. It was the biggest jump in a month and marked the 11th straight week that applications have been above 400,000.

New home sales fell in May to a seasonally adjusted annual rate of 319,000, the Commerce Department said. That's far below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market. Sales of new homes have fallen 18 percent in the two years since the recession ended.

A renewed warning from the European Central Bank chief about Europe's debt crisis contributed to the day's bleak economic news. And an agreement by 28 countries to boost global oil supplies forced energy stocks lower, contributing to the sell-off on Wall Street.

"We have had a worrisome string of soft numbers which is painting a fairly bleak picture of the recovery," said Sal Guatieri, senior economist at BMO Capital Markets. "The labor market is weakening according to the jobless claims numbers, confidence appears to be slipping among households and small businesses and home sales are still very depressed."

The Fed cut its economic growth forecast to between 2.7 and 2.9 percent this year, down from its range of 3.1 to 3.3 percent in April. The Fed also raised its unemployment rate estimate slightly, saying it would not fall below 8.6 percent this year.

In its policy statement, the Fed blamed the worsening outlook in part on temporary factors. High gas prices have forced consumers to spend less on discretionary items, such as appliances and vacations, which help boost growth. And supply disruptions from Japan's natural disasters have slowed manufacturing growth. The Fed said those problems should abate by the fall, and growth would pick up.

But when pressed by reporters, Bernanke acknowledged that some of the troubles are stronger and more persistent. He singled out the weaknesses in the financial sector and the housing market. And he said those problems could linger for some time.

"The chairman talked about temporary factors, but housing is clearly not temporary. It's a structural problem. This is going to stay with us for a while," said Yelena Shulyatyeva, an analyst at BNP Paribas.

What would help the economy most are jobs, analysts say. But according to an Associated Press Economy survey last week, the nation will add only about 1.9 million jobs this year and the unemployment rate will fall to only 8.7 percent at the end of the year.

The economy needs to generate at least 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate, which rose to 9.1 percent in May.

Companies pulled back on hiring in the spring in the face of higher gas and food prices. That has cut into consumer spending on other discretionary items, such as furniture and appliances, which help boost economic growth.

Layoffs, housing data point to chronic problems 06/23/11 [Last modified: Friday, June 24, 2011 12:12am]

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