|Clifford Iglodan, top, receives advice on his resume while attending a job fair in Southfield, Mich., Wednesday, Aug. 25, 2010. (AP Photo/Paul Sancya)|
Bad news on homes, goods adds to air of recession
WASHINGTON—It's starting to feel like another recession.
Businesses are ordering fewer goods. Home sales are the slowest in decades. Jobs are scarce, and unemployment claims are rising. Perhaps most worrisome, manufacturing activity, which had been one of the economy's few bright spots, is faltering.
"The odds of a double-dip are rising and uncomfortably high," said Mark Zandi, chief economist at Moody's Analytics, referring to the possibility that the nation will tip back into recession. "Nothing else can go wrong. There is no cushion left."
On Wednesday, the government offered the latest dose of grim news about the economic recovery: Companies cut back last month on their investments in equipment and machines. And Americans bought new homes at the weakest pace in nearly half a century.
Earlier this week came news that sales of previously occupied homes fell last month to the lowest level in 15 years.
Unemployment remains near double digits because job growth in the private sector has slowed.
The economy has grown for a full year now, and many experts believe the recession technically ended in July 2009. But the pace of expansion has slowed significantly in the past six months.
Economists are predicting the government will announce Friday that the economy grew from April to June even more slowly than previously thought, at an annual rate below 2 percent -- weak for normal times and especially anemic right after a recession.
Of course, for most Americans, the numbers are strictly academic.
For Tim Reardon, a sales executive at a small Massachusetts company that installs kitchen counters and floors, August is shaping up to be the worst month of business in 11 years. His company cut a third of its staff and is placing factory orders a job at a time.
"You definitely watch the pennies a little closer -- everything from advertising to tools," he said. "This is feeling like another recession."
For the average household, whether the economy is growing slightly or not at all may not matter much. Two gauges that matter more are the unemployment rate, which is stuck at 9.5 percent, and home values, which are down about 30 percent from their 2006 peak.
"Who cares if it's a second recession or a double-dip?" said William Dunkelberg, an economics professor at Temple University's School of Business and Management and chief economist of the National Federation of Independent Business. "Either way, things are not going well."
Overall orders for big-ticket manufactured goods did rise for July, the Commerce Department said Wednesday. But that was only because demand for commercial aircraft surged by 76 percent.
Taking out the volatile transportation category, orders for durable goods fell at the steepest rate since January. And business investment took its sharpest drop since the economic dark days of early 2009.
The decline is particularly troubling because manufacturers had been helping to lead the economy on its comeback, filling orders for businesses that were rebuilding their stockrooms.
"Take it away, throw in a relapse in housing and you don't have much left," said Paul Ashworth, senior U.S. economist at Capital Economics.
Housing has never fully recovered from the recession. Builders have been forced to compete with foreclosed properties offered at sharply lower prices.
Sales of new homes fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,000, the government said. From 1983 through 2007, about 600,000 new homes were sold in an average year.
The July pace was the slowest in at least 47 years. The past three months have been the worst on record.
Weak housing sales mean fewer jobs in the construction industry, which normally powers economic recoveries. On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
The industry got some help this spring when the government offered tax credits to homebuyers. But since they expired in April, the number of people looking to buy homes has dropped, even with bargain prices and the lowest mortgage rates in decades.
Toll Brothers Inc. was among those that benefited from the tax credits. Its CEO, Douglas Yearley, said there are positive signs: Far fewer buyers are canceling their orders for new homes than during the worst days of the housing bust.
And the buyers who are visiting Toll's sales offices appear to be serious about buying, rather than just examining model homes for decorating tips.
Still, builders have sharply scaled back construction in the face of weak sales. There were about 210,000 new homes up for sale at the end of July, the lowest level in about 40 years.