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Housing starts fall
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January 17, 2002: 10:00 a.m. ET
Housing starts give up warm-weather-fueled gains; new jobless claims drop.
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NEW YORK (CNN/Money) - Housing starts fell in December, the government said Tuesday, as the nation's housing market dipped back to earth after a November surge fueled by unseasonably warm weather.
Builders broke ground on new homes and apartments at a rate of about 1.57 million units in December, down 3.4 percent from November's revised 1.62 million annual rate, the Commerce Department said. Economists surveyed by Briefing.com expected starts at a rate of 1.61 million.
November's figure was revised downward, but housing starts still jumped 7 percent in November as builders took advantage of unusually warm weather.
But building permits, an indicator of builders' expectations, rose 3.6 percent to a 1.65 million rate from November's revised 1.59 million, the department reported. Economists surveyed by Briefing.com expected permits to fall to 1.56 million.
"This is a confirmation that weather probably was a factor holding up activity [in November], but underneath the surface, the setback in December isn't even what it looks like," said Goldman Sachs senior economist Edward McKelvey. "What I'm calling attention to specifically is the fact that single-family starts actually rose about 3.6 percent, while all the setback was in multi-family units."
New jobless claims down
Separately, the Labor Department reported that the number of Americans filing new claims for unemployment benefits fell to 384,000 last week from a revised 398,000 the preceding week. Economists surveyed by Briefing.com expected 438,000 jobless claims last week.
The four-week moving average of claims, which smoothes out fluctuations in the weekly data, fell to 411,000 from a revised 411,250 a week before.
The number of continuing claims, a measure of workers drawing benefits for more than a week, fell to 3.47 million in the week ended Jan. 5, the latest week for which data are available, from 3.51 million in the preceding week.
"The data suggest the pace of unemployment's rise is lessening," McKelvey said. "They don't tell you you'll get a turnaround, but they're encouraging."
Continuing claims fall when workers either run out of benefits or find new jobs. Since employers don't seem to be expanding their payrolls yet, it's possible that unemployed workers are simply running out of benefits.
"The inflow into that group [of continuing claims] is not as big," McKelvey said. "The outflow is problematic."
U.S. stocks rose in early trading, while Treasury bond prices fell.
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To keep consumers spending despite mounting job cuts and an unemployment rate creeping toward 6 percent, the Federal Reserve cut its target for short-term interest rates 11 times in 2001 to levels not seen since 1961.
Many economists expect the Fed policy makers to cut rates again at their next meeting, scheduled for Jan. 29-30, to insure the economy recovers from a recession that the National Bureau of Economic Research said began in March.
"Clearly they think the basis for a recovery is still quite fragile," McKelvey said. "They're probably still thinking in terms of one more step of easing. [Wednesday's] numbers won't greatly change the calculus."
Fed Chairman Alan Greenspan and other Fed officials have recently sounded cautious notes about the economy, suggesting that, while recent data have improved, it's still too early to declare a full-fledged recovery.
The Fed's periodic Beige Book report, released Tuesday, echoed that sentiment, pointing to mixed data, which included a softening housing market in some areas of the United States.
Low mortgage rates, which are not directly affected by Fed rate cuts, helped fuel a resilient housing market throughout 2001, making it one of a very few areas of strength in a recessionary economy.
The apparent continuing strength in housing, along with falling weekly jobless claims, led some economists on Wednesday to temper their expectations for another Fed cut in January.
"The Fed should see that the strength of the economy, housing, remains such, and with unemployment claims continuing to shrink, there is less and less need for another rate cut," said Joel Naroff, chief economist and president of Naroff Economic Advisors. 
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