Reed Saxon, Associated Press
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. Elevated unemployment benefit claims signal a worsening job market.
New-home sales fell in May to a seasonally adjusted annual rate of 319,000, the Commerce Department said. That's fewer than half the 700,000 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. Last year was the worst for new-home sales on records dating back half a century.
Stocks tumbled more than 200 points after the weaker data on housing and layoffs were released. It came one day after the Fed lowered its outlook for growth and unemployment for the rest of the year.
But news of an agreement by the 17-country eurozone, the International Monetary Fund and Greece on a new austerity plan sent stocks higher midday, helping the Dow Jones industrial average recover most of its earlier losses. The Dow closed nearly 60 points for the day.
"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 percent and 2.9 percent this year, down from its range of 3.1 percent 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.
Economists say they are worried by conflicting explanations for the more downbeat view.
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.
The White House is trying to avoid further unexpected setbacks to the economy. The Obama administration announced Thursday it was releasing 30 million barrels of oil from the country's emergency reserve, the largest ever. It is intended to increase U.S. supplies during the busy summer driving season and will likely send the cost of gas, which has already been falling, down further.
The other 27 nations said they would release a combined 30 million gallons. Together, that would add an extra 60 million gallons of oil to the world's supply. Still, American motorists use about that much in just three days.
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.