Widespread layoff announcements continue.  This week Caterpillar, Sprint-Nextel, Pfizer, and Corus announced layoffs of 10 percent or more of their work force, foreshadowing large job losses in the Bureau of Labor Statistics January employment report to be released on February 6th.  These layoff announcements follow other recent layoff announcements from a diverse group of companies ranging from Alcoa to Walgreens.   Previous layoff announcements were consistent with the sharp increase in last week’s initial jobless claim figures, which increased by over 60,000 during the week ending January 17.  States showing an increase of over 1,000 new jobless claims and filing comments cited layoffs in various industries as the reason for last week’s jump in jobless claims.  These layoffs affected most industries from expected layoffs in the automobile sector (Michigan and Indiana) and manufacturing sectors (Florida, Illinois, Kansas, Maine, Mississippi, North Carolina, Ohio, Virginia, Tennessee and Texas) to less expected declines in agriculture (California).  Initial jobless claims had declined over the holidays, consistent with newly unemployed workers waiting until after the holidays to claim unemployment benefits.  Currently, the number of unemployed persons claiming unemployment insurance benefits is 4.6 million, almost double the number from last year.

Existing home sales rise in December following plummeting prices.  This week the National Association of Realtors (NAR) announced that existing home sales rose in December by almost 300,000 homes (seasonally adjusted) from the previous month.  However, the NAR concurrently announced that median existing home prices plummeted another $5,000 to $174,700, consistent with reports that home sales are fueled by distress sales.   These house price declines echo recent data reported by the Federal Home Finance Agency, which reported that U.S. home prices fell in November by over 19 percent on an annual basis.  These data suggest that the housing bubble has not bottomed out, since housing prices fell by 1.8 percent from the previous month, a larger decline than in previous months.  The U.S. Census reported last week that housing starts and new permit applications were down sharply in December and were at the lowest levels ever recorded since monthly recording of these data began in 1959 (See Chart).

Fourth Quarter GDP Expected to Decline Sharply.  Fourth Quarter 2008 GDP will be released on Friday by the Bureau of Economic Analysis.  Some economists are predicting that output will drop far more significantly than it did during the Third Quarter, when it declined by 0.5 percent (seasonally adjusted annual rate).  For example, Macroeconomic Advisers has forecast that GDP will contract 5.8 percent on an annual basis.  If this proves accurate, the U.S. will experience the worst contraction in output since the first quarter of 1982.