May 22, 2008 / 5:16 PM / 10 years ago

Home prices drop, jobless rolls at 4-year high

WASHINGTON (Reuters) - Home prices fell a record 1.7 percent in the first quarter and the number of workers on jobless benefit rolls held at a four-year high, underscoring the economy’s woes, data on Thursday showed.

The continued slump in housing prices in the first quarter pushed them 3.1 percent below their year-ago level, the Office of Federal Housing Enterprise Oversight said. Like the quarter-to-quarter drop, the decline was the biggest in the 17 years the housing regulator has tracked the data.

OFHEO said prices fell 0.4 percent in March from February and are now down 3.7 percent from their April 2007 peak. Other home price measures have shown even steeper declines.

A separate report from the Labor Department showed first-time claims for state unemployment benefits unexpectedly fell 9,000 last week to 365,000.

However, the number of workers still on the benefit rolls after drawing an initial week of aid held at 3.073 million in the week ended May 10, the latest for which figures were available. The last time so-called continued claims were higher was in March 2004.

“The data tends to support our call of a move in the unemployment rate to 5.5 percent,” said Joseph Brusuelas, chief economist for Merk Investments in New York. The jobless rate stood at 5 percent in April.

Prices for U.S. government bonds fell, however, as traders saw the surprise drop in initial claims as a sign of labor market resilience and as oil prices surged to a fresh record above $135 per barrel.

Stock prices also rose, helped by the data and news of a proposed major acquisition in the utilities sector.

The plunging housing sector and tighter credit conditions have pushed the economy to the edge of, if not into, recession.

On Wednesday, the Federal Reserve released updated economic forecasts that showed policy-makers expect the economy to grow just 0.3 percent to 1.2 percent this year. That marked a sharp downward revision from the 1.3 percent to 2 percent forecast issued three months ago

Fed officials now expect the unemployment rate to average 5.5 percent to 5.7 percent in the fourth quarter.

Continued claims for jobless benefits have held above the 3 million mark for four straight weeks, a sign of the difficulties workers face getting back on the payrolls.

While initial filings dipped last week, a four-week average of new claims, a more reliable guide to underlying labor trends because it irons out weekly volatility, rose to 372,250 from 367,250 in the previous week

“Over the next few months claims should climb toward the 400,000 mark, as companies seek to control costs in the face of persistent very soft demand,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, New York.

“Expect volatility over the next couple of weeks as a result of Memorial Day seasonals, and then look for claims to spike in early July,” Shepherdson said.

The Senate on Thursday approved a Democratic initiative to extend the duration of jobless benefits to the long-term unemployed. Last week, the House of Representatives approved similar legislation, which faces opposition from President George W. Bush.

Additional reporting by Al Yoon, Steven C. Johnson, Richard Leong and John Parry in New York; Editing by Andrea Ricci

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