Data suggest economy stagnating

By Joanne Morrison

WASHINGTON (Reuters) - The housing market has still not reached bottom, the number of workers drawing jobless benefits has hit a 2-1/4-year high and consumers are tightening their purse strings, reports on Thursday showed, suggesting the economy may have screeched to a halt.

Pending sales of previously owned homes fell by 1.5 percent in December and were off a sharp 24 percent from a year ago, the National Association of Realtors said.

Separately, the Labor Department said new claims for unemployment aid edged down from a two-year high last week but the number of workers remaining on the benefit rolls has reached a level not seen since October 2005 in the aftermath of Hurricane Katrina.

On the retail front, a spate of reports from key chain stores like Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N) showed consumers have pulled back on spending. Sales in January were below expectations and were down at some key retailers.

"The risk of recession has certainly gone up," said Mark Vitner, economist at Wachovia Securities in Charlotte, North Carolina, who expects growth to remain lackluster until the housing market bottoms out around midyear.

Concern about the economy's weakness, heightened by a warning on slowing orders at technology heavyweight Cisco Systems Inc (CSCO.O) weighed on U.S. stock prices, which were up slightly in early afternoon.

NO BOTTOM YET FOR HOUSING

For last year as a whole, pending home sales -- a gauge of contracts signed for sales that have yet to close -- came in at the lowest level since the real estate industry trade group began tracking the data in 2001.

"It's a great borrowing environment, but its not translating into sales because everybody is looking for the bottom of the market," said Bob Moulton, president of mortgage brokerage Americana Mortgage Group in Manhasset, New York.

Moulton said sales will not pick up until prices, which have been falling across the United States, come down further.

The Realtors group projected sales would remain soft until the second half of this year, and said the market should then begin to improve, particularly if limits on the size of loans government-sponsored enterprises Fannie Mae and Freddie Mac can buy are raised, a step Congress is considering.

The associaton said prices for existing homes were likely to drop by 1.2 percent this year, with prices for new homes tumbling by a bigger 4.3 percent.

JOB MARKET WEAKENING?

Weakness that last year had been pretty much contained in the housing market has begun to spread through the economy more widely.

A report on Tuesday showed activity in the mighty U.S. services sector contracted last month, while data on Friday showed U.S. employment shrank in January for the first time in 4-1/2 years.