US jobless claims up higher than expectations

Initial claims for state unemployment insurance benefits rose 25,000 to a seasonally adjusted 584,000 in the week ended July 25 2009, the Labor Department said, a touch above market expectations for a reading of 570,000.

However, the four-week moving average for new claims, considered to be a better gauge of underlying trends as it irons out week-to-week volatility, fell by 8,250 to 559,000. This was the lowest level since late January.

The weekly moving average has declined for five straight weeks.

A Labor Department official said the trend in claims was now back to where it would have been without July distortions caused by the timing of auto plant shutdowns.

US stock index futures extended gains on the data which bolstered views that the recession was starting to ebb. US government bond prices fell, while the dollar gained versus the yen.

“The headline number in the jobless claims report was slightly worse than expected, but the continuing claims component was getting better so that bodes well for the US economy going forward,” said Matthew Strauss, Senior Currency Strategist at RBC Capital in Toronto.

Continuing claims — the number of people staying on the benefit rolls after collecting an initial week of aid — fell by 54,000 to 6.20 million in the week ended July 18, the latest week for which the data is available. This was the lowest since early April and marked the third straight week that this measure had declined.

Recent data, including home sales and prices, have added to growing optimism the recession is ending, but high unemployment continues to weigh on consumer sentiment, meaning that the economy’s recovery will be feeble.

Analysts have been closely monitoring initial jobless claims for signs of stability in the labor market, which has been hard hit by the 19-month old recession.

The insured unemployment rate, which measures the percentage of the insured labor force who are jobless, was unchanged at 4.7 per cent. Unemployment spreads distress in US home loans.

Cities in the US Sun Belt states of California, Florida, Nevada and Arizona dominated the record foreclosure spree in the first half of the year, but distress in other regions emerged as joblessness spread, RealtyTrac said.

Metro areas with populations of at least 200,000 in those four states accounted for 35 of the 50 highest foreclosure rates.

Mortgage failure
Mortgages have failed the fastest in the areas with the greatest overbuilding, purchases by speculators and reliance on riskier loan products to improve affordability.

But the source of the mortgage trouble has swung from lax lending standards to unemployment.

Some of the areas with the most severe foreclosure activity have started to show improvement as price cuts and first-time buyer tax credits lure purchasers.

With the unemployment rate near a 26-year high and many employers cutting wages, more consumers in areas that were initially spared in the foreclosure explosion are now behind in their home loan payments.

More than 20 per cent of areas with above-average foreclosure activity were in Oregon, Idaho, Utah, Arkansas, Illinois and South Carolina in the first half of the year.

That shift points to growing unemployment more than to fallout from subprime and adjustable-rate loans, RealtyTrac said in its midyear metropolitan foreclosure market report.

While total foreclosure activity kept rising, “some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, while new markets like Provo, Utah, and Boise, Idaho, have seen large increases,” RealtyTrac, Chief Executive Officer James J Saccacio, said in a statement. “As unemployment rates increase in different parts of the country, it’s very likely that we’ll see similar patterns develop elsewhere,” he said.

Home prices through May plunged more than 32 per cent from their mid-2006 peak, with losses varying sharply depending on region, according to Standard & Poor’s/Case-Shiller indexes.

A rise in foreclosure properties pressure prices of other homes for sale.

“As unemployment rises, we are seeing a change in the financial profile of the people seeking our help,” Suzanne Boas, President of Consumer Credit Counseling Service of Greater Atlanta, said this week.

“We are serving an increasing number of people who work in professional services and skilled trades,” she said. “These people have maintained solid incomes their entire lives, but are now in financial trouble and are reaching out for counseling to help avoid foreclosure.”

In June, 72 per cent of homeowners who got foreclosure prevention counseling from the agency, which serves all 50 states, were either unemployed or reported a drop in income.

RealtyTrac this month reported a record 1.9 million foreclosure filings on more than 1.5 million properties in the first six months of this year. The pace picked up after various temporary freezes ended in March. 

The company forecasts 4 million filings for the year.

Hope prevails
Las Vegas, Nevada, had the highest metro foreclosure rate, with 7.45 percent, or one of every 13 households with a loan, getting at least one filing in the first half of the year.

Filings include notice of default and auctions.

Cape Coral-Fort Myers area in Florida had the second highest rate and Merced, California was third. Both reported a slight decrease in foreclosure activity from the previous six months but a higher pace than the first half of 2008.

Other metro areas in the top 10 were the California cities of Riverside-San Bernardino-Ontario, Stockton, Modesto, Bakersfield and Vallejo-Fairfield; the Phoenix metro area and Orlando, Florida, metro area.

Foreclosure activity rose in all but Stockton and Modesto from the prior six months and from the first half of 2008.

Stockton had a 4 per cent drop in the first half from the prior six months and a nearly 13 per cent fall from the first half of 2008. Other hard-hit areas showed declining foreclosure activity in the first half, including Detroit and Cleveland, RealtyTrac said.