Any hope for better economic news at the beginning of the new year were dashed Thursday with fresh data showing that the collapse in the housing and labor markets continues unabated. Claims for unemployment benefits jumped to a seasonally adjusted 589,000 in the latest week, and Microsoft announced it is cutting 5,000 jobs.
Home construction plunged to an all-time low in December, capping the worst year for builders in a half-century.
The Commerce Department reported Thursday that construction of new homes and apartments plunged 15.5 percent to an annual rate of 550,000 units last month. Economists had predicted as many as 610,000 new home starts.
In 2008, builders broke ground on fewer than 1 million new homes, also a record low. That marked a 33.3 percent fall from a year earlier.
Meanwhile, jobless claims for the week rose 62,000 to 589,000 — far above expectations — as employers continued to cut jobs at a furious pace.
Unemployment is now at a 16-year high of 7.2 percent. Many economists predict the unemployment rate could reach double digits in the near future, matching jobless rates not seen since the early 1980s.
A 'Horrible' Picture
"These figures are horrible. What can you say? Pick an adjective: terrible, horrendous, disastrous. They all apply," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.
The Obama administration and congressional allies have proposed the largest public-spending program since World War II in the hope it can help break the economy from the recession's grip, although some Republicans have raised concerns about the size and scope of the plan.
A key tenet of the package, Obama has said, will be reducing the number of foreclosures across the country and increasing credit access to consumers.
No Quick Fix
During his Senate confirmation hearing Wednesday, Treasury Secretary-designate Timothy Geithner said the package probably would not be delivered for several weeks, signaling that the administration hopes to deal with the economic crisis in a systematic way instead of responding on a case-by-case basis.
"We're at the beginning of this process of repairing the system, not close to the end of that process," Geithner told the Senate Finance Committee. "And it is going to require much more substantial action on a very dramatic scale."
It remains to be seen how long the financial system will remain stable enough to keep from forcing the new administration's hand.
Fear of a wider banking collapse has grown in recent days, with signs that losses at major U.S. and foreign banks are deepening.
Low Rates Not Enough
The Federal Reserve has taken a number of extraordinary steps in the hopes of providing some economic relief. It is buying up certain types of mortgages and has slashed a key interest rate to a record low of between zero and 0.25 percent.
As a result, mortgage rates have dropped to the lowest level in decades in recent weeks, although that does not appear to be drawing enough new buyers into the housing market.
Also on Thursday, Microsoft Corp. stunned investors with the announcement that it would cut 5,000 jobs, about 5 percent of its workforce, over the next 18 months owing to fallout from the global recession. The company also reported that its profit in the second quarter slid 11 percent.
"We are not immune to the effects of the economy," Microsoft Chief Executive Steve Ballmer said in the company's earnings report.
Intel Corp. said Wednesday that it plans to cut up to 6,000 manufacturing jobs as the company struggles with lower demand for personal computers.
Even More Stimulus Needed?
Shepherdson of High Frequency Economics believes that the bleak economic situation isn't likely to change until the planned federal package is enacted and filters broadly throughout the economy. He predicts the administration will have to seek an additional stimulus package as early as next year as the economy worsens in coming months.
A report from the Congressional Budget Office concluded that much of the stimulus money would not be spent until after 2010. The report found that of the $355 billion Democrats proposed for infrastructure and other so-called discretionary spending, only $136 billion would be spent in the next two years.
"The economy is in an unambiguous trend downward. It is going to require a great deal of effort before that begins to change," Shepherdson said.
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