Economic Update:  Unemployment Claims and National Housing Update

07.23.2010

Unemployment claims increased more than expected yesterday.  In the weekly report by the Labor Department, new claims for unemployment increased above the 450,000 level to 464,000.    The less volatile 4-week average declined slightly to 456,000.  As we have commented in previous columns, this number has to consistently be under the 450,000 level before we begin to see significant progress in the labor markets.    Prior to the recession, weekly claims were in the 350,000 range.  So we have yet to see the necessary reduction in new claims for unemployment.

The Labor Department reports two sets of numbers weekly:  new claims and continuing claims.   My preference at this point is to focus on the new claims, as opposed to the continuing claims.   Given the high duration of unemployment and the repeated extensions of unemployment compensation, the new claims number might provide a more accurate picture of underlying labor market strength. 

There were a couple of numbers that raise some concerns.  Claims increased for both Kentucky and Indiana.  Claims in Indiana increased by more than 9,000 however.  This is one of the highest numbers that I can recall for Indiana.  This could be due to scheduled temporary shut downs or indicative of a broader slow down in the economy.

Source:   www.barrons.com

National Housing Update

The Census Bureau reported this week that housing starts declined to an annual level of 549,000.   This number was less than what economists had expected.  No doubt, we are beginning to see the effects of removing government oxygen from housing.   The expiration of the housing tax credit has led to declines in building permits, housing starts, and home sales.  Housing is important to the Indiana and Kentucky economies due to the connection between housing and manufacturing.   There is also a connection between housing and durable goods such as automobiles.  As home values increase, the wealth effect kicks in and consumers are more likely to make major purchases such as a car.    The latest housing numbers, in my opinion, indicate that manufacturing is about to hit a rough patch.  The initial surge in manufacturing was due inventory restocking, and now we need consumer demand to make up the difference.   The consumer demand may not be at the level we need to justify recent growth in manufacturing.  Only time will tell.

Locally, the FHFA (Federal Housing Finance Agency) Home Price Index for Louisville Metro has recorded 4 consecutive quarterly declines in home prices.   Since 1977, there were only 3 declines in the history of the price index, and these declines occurred non-consecutively.   Even though Louisville Metro may not be seeing some of the housing challenges that other metro areas have experienced, local home values have suffered.

www.barrons.com

www.barrons.com

Suggestions

If you have any suggestions on future columns or research about specific industries or other economic data, please send me an email at udufrene@ius.edu.

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Uric Dufrene.

Uric Dufrene, Ph.D. holds the Sanders Chair in Business in theSchool of Business at Indiana University Southeast. He conducts research on local and regional economic trends, and teaches corporate finance at the undergraduate and graduate levels. He previously served as dean of the School of Business.